The invasion of Ukraine has shaken emotions and certainties as the world watches a growing humanitarian disaster. The reactions of global markets, which had misread President Putin’s strategy as much as many politicians, were similarly sent into crisis mode.
On Thursday 24 February, Europe woke to the news that Russia’s forces had entered Ukraine from the north, the east and the south of the country following a substantial military build-up on Ukraine’s borders as far back as last October. However, the common assumption – now seen as wishful thinking – was that the growth in troop numbers represented an exercise in ramping up tension, to be followed by a partial wind down a few months later, as happened between March and June 2021. When this hypothesis was proved horribly wrong, there was surprise bordering on shock.
By their very nature, investment markets react to surprises. When a company produces better than expected results, its shares will often rise. When the global economic outlook suddenly becomes uncertain – as happened on 24 February – the markets’ reaction is to retreat and reconsider. By the close of business on that day both UK and Eurozone share markets had fallen by more than 3%. Stark headlines appeared highlighting billions wiped off the value of shares. The following day, the falls were largely reversed, but there were no corresponding ‘market surges’ headlines as the focus moved to the human, rather than simply financial costs.
It is too early to gauge the effects of sanctions and companies withdrawing and divesting from Russian markets. We do know the effects will be felt not only in Russia but more widely. For long-term investors, the market gyrations such as those we have seen since 24 February will seem much less dramatic than they do now – more as ‘noise’ which will play out. The whipsaw changes are instant reactions to the relentless news flow, influenced by short-term traders. At the time, such moves can feel significant, but look at market graphs covering five years or more and they can be almost impossible to spot.
A standard investment warning is that past performance is not a guide to the future. That is all the more the case when the investment horizon is measured in years, but the past experience in weeks. It’s easy and tempting to sell out and hope to get back in at the bottom. But actually timing the return is very tricky. Market timing is very hard – almost impossible – and the benefits of long-term investing come from time in the market. If you are a long-term investor with a diversified portfolio, the cliché of ‘Keep calm and carry on’ is as good a maxim as any even in these far from normal times.
The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
11th March 2022