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Investing During War Times

By Chris Burke
This article is published on: 7th March 2022

Off the back of the current situation in Ukraine, many of my clients have been asking me what this means for their investment and pension portfolios. Irrespective of the size and scope of the conflict, any declaration of war has global repercussions. Instability in one area of the world will result in a ripple effect, effecting other areas of the world regardless of the countries involved. Yes, this is likely to affect your investments and your pensions but the key takeaway is that you should not worry. If you are panicking, please reach out to me and we can have a conversation about it. There are even areas of opportunity in war times and stocks in certain sectors have even bucked the trend and outperformed. In this article, I will discuss investing in war times, including the current conflict in Ukraine, and the impact that this has on the stock market performance and the wider economy.

The Current Conflict in Ukraine
In the case of the current conflict between Russia and Ukraine, the heavy sanctions inflicted on Russia already have and will continue to heavily effect the global economy. The sanctions are amongst the harshest sanctions ever imposed on a country, and include preventing the Russian Government from accessing up to 600 billion USD in foreign cash reserves which they hold in foreign banks around the world, banning Russia from SWIFT (thus preventing Russians from using various credit and debit cards to make payments) and the freezing of the assets of some Russian individuals around the world ranging from bank accounts, property and even private yachts.

Various multinational companies have also ceased or reduced their operations in Russia (at least temporarily). For example, Apple have closed their Russian stores, Shell and BP have sold their stakes or abandoned their Russian operations and a magnitude of aviation companies such as British Airways, Lufthansa and Boeing have either halted their flights to Russia (note that there have also been significant alterations to the accessibility of international airspace) or in Boeing’s case, suspended parts, maintenance and technical support for Russian airlines.

impact of wars on stockmarkets

The conflict does not solely impact the Russian economy. A large number of countries throughout the world export products to Russia. If this is no longer possible, then they will see a reduction in profits, which will then go on to affect their balance sheet. Furthermore, many countries in the world import products from Russia. The key product in this case is oil, a vital energy source. Although the supply of oil has not yet been cut, we have already seen a rise in petrol prices in many countries such as the UK. Other popular Russian products such as vodka are likely to be hit. Due to the decrease in supply, we are likely to see both shortages and a rise in price of Russian products such as vodka.

However, it is very difficult to predict exactly what will happen. For this reason, when making personal finance related decisions it is recommended that you engage in a professional discussion with a professional financial adviser. In times of war in particular, it is recommended that people seek the advice of an expert to help them manage their portfolios.

Previous Wars and Their Impact on Stock Market Performance
It’s important that we consider previous wars and the impact that they had on the stock market. Some civil wars and internal conflicts, such as those in Sierra Leone (1991-2002) and the Central African Republic in 2013, caused severe disturbances in those countries’ economies. However, from a global perspective, these wars did not cause disturbances in the stock market of first-world nations such as the USA. On the other hand, large-scale wars such as World War 1 and 2 did effect the US market, even before the US entered the conflict.

Global markets in the past operated very differently from how they operate today. For example, prior to World War 1 every country operated independently and the countries that operated in global trade were seen as at ‘gold standard’ level. London was the world’s financial capital and used in this way when a financial centre was necessary, however the requirements and responsibilities were very different when compared to nowadays.

At the close of World War 2, significant changes were made to the global financial system which increased interdependence between countries. The World Bank and the IMF (International Monetary Fund) were created, and from then on stocks reacted very differently from World War 1 and World War 2 when conflicts arose.

It’s also important to consider the popularity of the war on the home front and the amount of time in which the war goes on for. For example, the Vietnam War and the Gulf War both saw very different stock market outcomes in the USA due to the difference in popularity of the wars amongst Americans. Furthermore, the Afghanistan War lasted almost 20 years. In this 20 years, the markets saw both highs and lows. Ultimately, the longer a war goes on the less reactive a market is to its influence. A war may start to be seen as a ‘Business as usual’ type of operation.

I created the below table, summarising previous wars and their impact on the economy and stock market performance (I used the Dow Jones stock market as a comparison).

World War 1
  • Nations that imported more than they exported lost gold reserves, negatively impacting their economies, because the slow economic conditions saw greater demand for exports
  • When Archduke Franz Ferdinand was assassinated, what is considered as the start catalyst of the war, the stock market was barely effected
  • When Austria-Hungary declared war on Serbia in 1914, the Dow Jones dropped by 30% and the market had to close to maintain order and stability. When it opened a few months later, it sawed up by 88% and continued to rise until late 1916
  • When the US declared War in Germany in 1917, the stock market took a hit and continued trending downwards into 1918. It didn’t recover fully until mid 1919, on the news that the war was over
World War 2
  • The US was just emerging from the Great Depression in 1939 when the war started. In the early days of the war the Dow Jones increased over 10%, offering hope that the geopolitical environment would put an end to the challenging economic times. However, the conflict started to disrupt international trade and after this initial boost, the market started to fall significantly
  • Rapid action from various impacted Governments around the world prevented the stock market from falling further than it did
  • From 1939 to the end of the war in 1945, the Dow Jones was up 50%. Considering the economic conditions, this was a rather unexpected gain. The gain was put down to the various international cooperation agreements which succeeded in stabilising and growing the US economy
Korean War
  • The Dow Jones dropped around 5% on the first day – the war was a shock to most investors
  • The recovery was fast, and by the time the war ended in 1953 the Dow Jones was up almost 60%. This is thought to be due to a number of Government policies such as increasing taxes and not borrowing money to fund the war.
Vietnam War
  • The Dow Jones grew by 43% from the start to the end of the war (1965 to 1973), despite its low popularity
  • However, it was not all plain sailing. The Government’s decisions on funding the war caused inflation, setting off a mild recession in 1970
Gulf War
  • The Gulf War only lasted for 7 months. Due to its shortness, it is more difficult to separate the changes caused by the conflicts from those related to other world events. For example oil prices increased, causing a brief recession, which is an unusual event for war times
  • When comparing the Gulf War with the previous wars, the US economy has changed a lot. The economy changed from processing natural resources and manufacturing capital goods to primarily knowledge based work (producing information and services). This may have meant that the stock market reacted differently during this war compared to previous wars.
Afghanistan War
  • The Afghanistan War lasted for almost 20 years, making it difficult to measure the impact of the war
  • There were two crashes (2008 Global Financial Crisis and 2020 Covid Pandemic) which were both followed by quick recoveries, however these were largely unrelated to the war
  • Industries such as Real Estate, Data Processing and Information Services and Computer Systems design and related services saw huge growth, suggesting that the war did not influence them. Shares in industry-leading defense contractors also profited significantly during the war.

Do any Patterns Emerge from Historical Stock Market Performance During War Times?
In the early days, there is certainly volatility. For example, both the FTSE and the Dow Jones took a dip last week (25/02/22) when Russia invaded Ukraine, however both have recovered since then. Logic dictates that this volatility continues throughout war times, however history has shown that this is not always the case. Yes, during pre-war times and at the beginning of a war (especially if there is no escalation period and the war breaks out suddenly without warning) stocks prices tend to decline due to shock and uncertainty. However, once war begins, history has shown that the stock market goes up, as has been the case with the Dow Jones and the FTSE this week (as of 03/03/22).

Generally speaking, there is no need to panic. Panic selling stocks and investments at the start of a war could prove to be a very bad move, considering that early sharp drops tend to be followed by steady gains. However, it is also important to note that the world is changing and that historical patterns may not play out again in future conflicts. Economics and the way in which the stock market behaves is very complex and depends on a variety of internal and external factors such as earnings, valuation, inflation, interest rates, and overall economic growth. Regardless of world events, investors should maintain proven strategies to protect and grow portfolios. The best way in which you could do this is to speak with an expert, and have your investment portfolio professionally managed.

If you would like to speak with an expert, Chris Burke is able to review your pensions, investments and other assets, with the potential to make them more effective moving forward. If you would like to find out more or to talk through your situation and receive expert, factual advice, don’t hesitate to get in touch with Chris via the form below:

Article by Chris Burke

If you are based in the Barcelona/Costa Brava area and would like to have an initial, complimentary face to face video call or arrange a time to visit Chris in his office in central Barcelona, contact Chris on or whatsapp +34 689915730.

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