100 days of war: how to deal with the impacts on financial markets

Financial markets: the current situation

The war in Ukraine has generated high volatility in the financial markets. The outbreak of the conflict came at a very difficult time in the global history as the fight against the Covid19 pandemic is not yet finally over. For this reason, from the outset, concerns about global instability and apprehension about the fate of entire populations were also compounded by strong uncertainties related to the world of savings and investments.
As is always the case in economic or geopolitical crisis scenarios, stock exchanges around the world immediately showed strong price instability, generating panic among investors: only in the first two weeks of the war, the major stock exchanges recorded heavy losses, which cancelled out the recovery we had witnessed in the previous six-eight months.
In addition, sanctions applied by the international community against Russia led to a sharp spike in the cost of energy and various commodities, affecting individuals and businesses.
The market correction has also been unstable and erratic and in turn has seen the stock market also return to pre-conflict levels and then fall back. This has happened several times in history: 1929 Wall Street, World War II, the Internet bubble, Lehman Brothers, the Gulf War, the Balkan War are just some examples. In all these cases, in not very much time (often less than twelve months) stock markets have always largely recovered their losses. So, the so-called boom and bust cycle is not a news.

How to invest and protect savings in times of crisis

From the picture outlined so far, two macro-considerations emerge: the first is that in times of crisis and market fluctuations there are several opportunities to invest in the stock market by opening up possibilities to position oneself in the market at the right time; the second is that the fear triggered by the sharp fluctuations in the stock market may lead one to immediately sell stocks or stock funds, permanently giving up on recovering any losses.

It is crucial to know some traits of stock markets in times of crisis to avoid taking impulsive actions dictated by uncertainty.

  • Volatility. Stock markets generally are affected, especially in the short term, by strong price fluctuations also caused by changes in trading volume. These fluctuations, however, are likely to diminish in the long run if the economic outlook stabilizes. Maintaining a broad-based view can be a winning attitude in these cases to preserve one's stock portfolio.
  • Illiquidity. During sudden changes in the market, so many investors sell their stocks, driven by a lower propensity to take risks. However, it can often be difficult to get rid of one's investments, except at the cost of accepting significant losses or having to wait a long time.
  • Safe havens. Investing in the safe havens, could be a solution for those who want a solution that presents low risk. Precious metals, such as gold, hold value over time, and although they too are subject to fluctuations in times of crisis, they often appreciate especially at times when inflation rears its head again.

Diversifying one's investment portfolio is certainly helpful in cushioning the effects of a crisis, such as the one generated by the current situation. The diversification, however, does not allow one to avoid the so-called "systemic'' risk-that is, the risk that depends on factors that affect the general performance of the market and thus of all traded securities. In general, when in doubt, it is always best to rely on a qualified intermediary who can give the best possible support.

Read the other articles of the Magazine

We use our own and third-party cookies to:
facilitate your navigation within the site, analyze its performance and provide you with profiled content based on your interests.
By continuing to browse, you consent to the use of cookies.