KEEP CALM AND CARRY ON

As the Ukraine-Russia crisis escalates, waves are being created across the financial markets, however, we’re urging investors to keep calm and carry on.

As Russia crossed the border this morning (24 February 2022), an invasion of its neighbour may, at least in the short term, extend 2022’s volatility in the stock and commodity markets. The FTSE 100, for example, was down -2.5% at market open this morning, and down around 5% from its peak on 10 February.

We can’t say with certainty how this will fully play out, but as such, our financial advisers at PM+M are ready to react to developments and make moves as appropriate.

However, from what we have observed so far, we expect the following:

  • Sanctions on Russia are likely to be highly inflationary, especially in the short term. This has already been observed through an increase in the oil price
  • Uncertainty will hit equity markets, especially those with close proximity (Europe) or those that carry higher risks
  • Russian equities have been hit extremely hard, down almost 40% this year at the time of writing, and this is likely to persist
  • Government bonds will rally in the short term, although this may be muted due to the inflation risks

Over the last couple of years, we have acknowledged the threat of inflation, and have already positioned for this*, for example:

  • In portfolios with higher equity weights, we use the iShares Energy ETF which invests on the large oil companies; this is up 4% today and up 20% year to date (at the time of writing)
  • We hold US TIPS in the lower risk portfolios which brings some protection against inflation; this ETF is up 2% this morning
  • We hold lower risk equities such as Consumer Staples and Health Care; although they have fallen in value, the move is less than that of the wider market given their perception of being less impacted by world events
  • We have shortened the average maturity of our corporate bond holdings which lowers the overall portfolio risk

Our direct exposure to Russian equities in all portfolios is less than 1% as it already represented a very small amount of global stock markets.

In terms of what investors should do against the media hype on major geopolitical issues, it is neither ‘sell in a panic’, or a ‘buy everything’ reaction.  For most long-term investors, they need to ‘keep calm and carry on’.

For the immediate future, it is hard to predict what the markets are going to do, and while the financial markets don’t like uncertainty, our timeframe as investors to create a long term financial plan is years and possibly decades, not days, weeks or even months.

History has shown us that stock markets can be fairly predictable over long periods of time. They tend to go up over multi-year time periods, so, investors need to ask themselves ‘will stock markets be higher than this when I retire?’. Looking at financial market history, the answer is probably ‘yes’ (if they have a decade or more ahead of them).

So the message from us is, broadly: keep calm and carry on.

 

*This refers specifically to PM+M’s Managed Portfolio Service

Remember that investments go up and down in value, and you could lose money as well as make it. How you’re taxed will depend on your circumstances and tax rules can change.