The Ukraine conflict is inevitably having an effect on the financial markets, because of the importance of Russia as an energy supplier to the rest of Europe, the impact of increasingly swingeing sanctions, and the fact that Ukraine is itself an important supplier of foodstuffs.
Energy prices were already high (and rising).
With Russia being a major supplier, the cutting off of Russian exports of oil and natural gas is bound to have a damaging effect on inflation rates across Europe and beyond. The country provides around 10% of the world’s energy – and nearly 50% of the energy consumed in continental Europe. We have already seen oil prices jump to more than $100 a barrel for the first time in seven years.
Underlying all of this is the fact that the markets’ confidence is always dented by instability. Although they had already factored in the tensions in the region, the conflict itself has only increased short-term market volatility. But history shows us that whilst geopolitical crises such as the one between Russia and Ukraine can temporarily upset markets, they do not typically have long-term consequences for investors.
At the start of the Covid pandemic in March 2020, we witnessed a dramatic 30% fall in market values over one month as the outbreak of the virus took its toll. Twelve months later many markets had returned to pre-Covid values. Immediately prior to the Ukraine conflict, the FTSE All Share Index was not far short of 20% ahead of where it was in March 2019.
The message to investors as we face another wave of market volatility is exactly the same as it was at the start of the pandemic two years ago:
- Investing is considered a medium to long-term approach – generally 5 years and beyond.
- A diverse investment solution is of paramount importance in protecting investors against volatility.
- Selling assets because of short-term movement in the markets is something to avoid, if possible; you could limit the longer-term growth potential.
The key message in the current unstable situation is: don’t panic. Investments decisions made on a knee-jerk basis are seldom the right ones; a calm head is called for now more than ever.