BY JOHN ELLIS, FINANCIAL ADVISOR
I’m sure every financial advisors email has been flooded with the views of the various institutions on the Ukrainian crisis. And, as people scramble to make sense of the upheaval, much current guidance will become nearly immediately outdated being replaced by new advice as the saga unfolds.
Areas of concern included inflation; before, the hope was that as Covid related supply chain issued normalised inflation would reduce. But, now, with the spike in energy costs, even though we don’t import gas from Russia, there will be a significant hit on top of already raised prices.
The price of oil was more than $100 a barrel for the first time since 2014 but as it seems the Russian energy industry — the second largest producer of oil and gas globally, providing 40% of Europe’s gas supply — is unlikely to be sanctioned the price has come back down.
There has been an immediate impact on financial markets, with risk assets being sold off and a move toward government bond markets. European equity markets at time of writing were down close to -5% and US equity market down about -2%. But US equity markets rallied aggressively in late US trading after President Biden announced less severe sanctions than were anticipated. This trend will continue with increased volatility for the foreseeable future.
Government bonds are in favour again especially inflation-linked bonds. One insurance company confirmed de-risking their portfolios and taking on larger position in bonds.
According to some commentators Central Banks will be unable to materially raise interest rates to combat inflation for fear of causing significant harm to economies and to jobs.
Gold pushed past €1,700 an ounce but is back at €1,670 and will eventually find a new trading range.
It is likely to put initial public offerings (IPO) and large merger and acquisitions already struggling against market turmoil on the back burner.
While on the other end of the risk scale Bitcoin plunged to as low as $34,778, the lowest level since 24 January.
Kevin Quinn, Chief Investment Strategist with New Ireland, said: “The escalation of the crisis in Ukraine into conflict will hamper markets in the near term and we are experiencing its effect across the asset classes. However, once it is contained and doesn’t result in Western military engagement its market impact should prove short lived. It may add to the inflationary pressures that the ECB is facing as energy prices could be impacted for longer than had been hoped.”
In the light of this what should we do with our current investments.?
Many people find financial decisions and financial planning quite tricky at the best of times but in a crisis situation it can be worse and often are put off or “flee to cash”. Although there is likely to be a cost, a conversation with a financial adviser would give you good ideas about where to start.
The first thing to do is remember that staying invested in a diversified, goals-aligned portfolio has paid off through countless crises, wars, pandemics, and recessions, and will likely continue to do so.
This is not the first time Russia has been the cause of market upheaval. Going back to the Soviet invasion of Afghanistan, six instances of Russian aggression can be identified and in all, but the 2008 invasion of Georgia, occurring during the fthen inancial crisis, stock markets showed strong gains over six and 12 months later.
In a previous column wIadvised you have a formal, written investment policy or allocation guideline for your entire portfolio. We advised at outset commit to a disciplined investment plan. We advised establishing objectives (for example: retirement planning, education, a holiday) and your time frame. Finally establish your willingness to take risk, sometimes called ‘risk attitude’ or ‘risk preference’, your financial ability to take risk, or ‘risk capacity’ and your need to take risk.
By having this policy in place your decisions are less likely to be swayed by emotion and will cut down on impulsive decisions especially during stressful times.
So, stick to it!