In the light of Russia’s invasion of Ukraine, we have put together a short update on the effect the subsequent events have had on international markets and what we can expect both short-term and long-term, based on past experiences.
The invasion has already had immediate implications for the global economy, particularly continuing to disrupt commodities markets. Capital markets, in general, had seemingly not priced in the geopolitical events taking a turn for the worse, given the volatility across global markets felt on day 1 of the invasion.
While the recent turn of events is quite dire from a humanitarian & sovereign perspective, equities tend to take geopolitical events in stride. In fact, over the last tumultuous week, the S&P ended with a gain of 0.82%. Research from Deutsche Bank suggests that the median US stock decline during these geopolitical events is 5.7%. Furthermore, these declines tend to be short-lived: approximately three weeks to a bottom and three weeks to recover to prior levels.
This invasion of Ukraine by Russia recalls an observation made by Warren Buffett during the 1990s:
“We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen. Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%.”
The positive side of this is none of the major global events mentioned above has had a material impact on long-term equity returns. This, in summary, means it’s irrational for long-term investors to alter their portfolios in the face of adverse geopolitical headlines.
If you have any questions about the latest market update, please contact us directly.