In times of war, investors shouldn’t sell first and ask questions later

In the case of Russia’s invasion of Ukraine, the MSCI AC Europe index is near all-time highs nearly two years after the start of the war.

Hugh Dive, chief investment officer from Atlas Funds Management, believes investors should think about the companies they own in their portfolio and any links to the conflict in question. For example, is the military conflict likely to affect CSL’s sales of life-saving biotherapies or will the conflict have an impact on Woodside’s LNG sales or what consumers buy at Bunnings?

If the conflict is unlikely to impact sales in the companies investors own, the initial share market panic can present a buying opportunity for long-term investors, says Dive.

Smolinski says investors should consider the unique aspects of each conflict. The stock market returns outlined in the table largely comprise countries where the conflict was not happening on home soil. Investments in Russia after the Ukraine invasion fared very differently.

If the answer is yes to this question – “will this business be bigger and stronger in five years?” – Smolinski says a pullback in prices can provide a buying opportunity.

Regarding the current conflicts, Smolinski points to the risk that the focus on the Israeli/Hamas war diminishes the attention on Ukraine and gives Russia time to refocus, rebuild and continue its war in Ukraine.

The resistance effort within Ukraine requires continued aid from the US and EU – should this aid be diverted to the Middle East, it may change the calculus around ceasefire treaties from the Ukrainian perspective.

Platinum is also paying attention to the role China is playing on the world stage – in particular, the uncomfortable position it is maintaining keeping Russia as an “ally” while keeping trade routes open and maintaining trade with the US and the EU.

Dive thinks the key risk in the Middle East is if the conflict widens – as it did in 1914 from a conflict between Austria-Hungary and Serbia – to engulf Europe. This could disrupt global oil flows and the corresponding spike in energy prices would have a negative impact on the global economy.

Investors should continue to monitor these issues.

Dive says investments that typically perform well during wartime include defence companies, energy companies and commodity companies – particularly gold for its safe haven status.

Investors can be drawn to other safe haven investments such as food retailing, but care should be taken to ensure investors do not overpay for these assets simply to hide during geopolitical tension.

Smolinski suggests investments that can struggle during conflicts include airlines – due to increased energy prices and reduced demand for travel. Financial stocks also have been consistent underperformers during conflicts, with insurance stocks faring the worst.

Investors need to keep news flow in perspective and act on information, rather than running with the herd.