Geopolitics & Investment Markets

Geopolitics & Investment Markets: A Ukrainian flag with the setting sun shining through from behind.

The ongoing conflict in Ukraine and the resulting sanctions placed on Russia by many Western countries are, understandably, having an impact on the global financial markets. For many of us with investments depending heavily on the performance of these markets, it can sometimes be difficult not to panic.

But history has shown us many times before that when geopolitics unsettle the investment markets, the markets have always recovered.

A recent article by Reuters, published mid-February as speculation built over Russia’s intentions, states:

“Worries over a potential Russian invasion into Ukraine could fuel stock weakness over the short-term, but most U.S. market fallout related to geopolitics is likely to be short-lived, if history is any guide.

“Past ructions from geopolitical events have been comparatively fleeting, CFRA’s research showed. The firm analyzed 24 events since World War II, finding the S&P 500 fell on average of 5.5% from peak to trough in the aftermath of those events.

“The market took an average of 24 days from the start of the event to reach a bottom, but it recouped those losses in an average of 28 days later”.

“Truist Advisory Services, meanwhile, reviewed 12 historical events, including the 2003 Iraq War, 1979 Iranian hostage crisis and the 1962 Cuban missile crisis. The S&P 500 was higher a year after those events in nine of the 12 times, with an average gain of 8.6%”.

Closer to Home

“The long-term record shows that investors who stayed disciplined and diversified through past global events, and the resulting market volatility, have been rewarded.”

– Jim Parker, Vice President DFA Australia Limited

Here in Australia, Dimensional (DFA Australia Limited) has taken steps to help further reduce exposure to Russia:

“In recent days, the US and other Western governments have issued sweeping new sanctions directed at Russia. Our Portfolio Management and Compliance teams are actively monitoring this rapidly evolving situation. We previously reduced the weight of Russia in our emerging markets and global equity portfolios after sanctions were imposed in 2014 after the annexation of Crimea. In January 2022, we halted further purchases of Russian stocks in response to rising risks of sanctions on Russia from the United States and other nations. We are not currently buying Russian shares, including depositary receipts with exposure to Russia, and we are evaluating the suitability of Russian securities for our portfolios. Russian ruble-denominated bonds and Russian issuers have never been eligible for Dimensional’s fixed-income portfolios.

“Investors in global equity portfolios inevitably face periods of geopolitical tensions. Sometimes these events lead to restrictions, sanctions, and other types of market disruptions. We cannot predict when these events will occur or exactly what form they will take. However, we can plan for them by managing diversified portfolios and building flexibility into our process.”

You can read Dimensional’s full update here.

Baldwin Financial Services is based in the northeastern suburbs of Adelaide.
Contact us to find out how we may be able to help you.