Market Impacts of War in Ukraine

The devastating and tragic invasion of Ukraine by Russian forces has brought and will continue to bring heartbreaking impacts to the lives of millions. Our thoughts are with those affected, and all of us here at AGS Financial Group hope for as peaceful and speedy a resolution as possible.

You may be wondering about the impact on financial markets and the longer-term investment outlook from these unfolding global events. While it is impossible to predict with any certainty, history suggests that the impacts of geo-political events are typically short-lived.

The table below illustrates a number of significant world events, and the impact on the US share market. For each event you can see the one-day impact on the market, the total decline, how long the decline took, and how long the recovery took. From a financial perspective, the bombing of Pearl Harbour was the most significant, with a near-20% decline over a period of nearly 5 months, and a 10-month recovery period. Interestingly, the “bull market” of the 50’s began before the end of World War 2, and was not hampered by the Korean War. 9/11 shocked the world, and changed air travel forever, but the share market impact was limited to just 42 days.

So, what affects Financial Markets?

Typically, financial markets are influenced by risk and long-term economic fundamentals. The uncertainty and tensions pre-invasion illustrate that quite well, with share market declines through January and February. Russian & Ukrainian production of oil, gas and grains bring real economic uncertainties. There are also further geo-political uncertainties in terms of China. So, the day-to-day volatility in markets (with swings both up and down) is not surprising and may well continue for some time.

Longer-term though, it’s worth noting that Russia & Ukraine represent relatively small economies (at 2% and 0.1% respectively of global gross domestic production). The global economy is, so far, growing and recovering well out of the COVID economic environment. Key drivers here remain interest rates, inflation and tight labour markets in leading economies.

What should investors do?

Typically, nothing. For investors, it’s important to remember the basics: think long term, diversify, and be patient. It’s impossible to predict the highs and lows of markets, or the timing of geo-political events. For wealth accumulators, market declines can create opportunities to pick up cheap investments. For retirees, it’s usually a case of relying on your shorter-term defensive assets, and waiting it out.

Other than that, please join with us in wishing for a speedy, peaceful resolution and a minimum of the human suffering being experienced by those on the other side of the globe.

Should you have any questions or concerns please speak to your AGS financial planner or key relationship manager, or Contact Us here.

Published : 03 Mar 2022

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