Global markets have sold off heavily today as Russia has confirmed the worst
Global markets have sold off heavily today as Russia has confirmed the worst – yet very much expected – fears that it would begin an invasion of Ukraine, with the ASX 200 down around 3% today and the futures in US markets predicting similar falls. The current market wobbles follow on from a sell-off in January as markets corrected in response to surging inflation and the potential impact on interest rates.
Aside from the tragedy of a war between Russia and Ukraine, it is hard to see any lasting impact from such a conflict on global markets to warrant such current market volatility. While this is the biggest invasion since WWII, conflict between Russia and Ukraine is not without precedent – in fact, Russia has been occupying Crimea in Ukraine since 2014 – and it’s certainly not the first time that markets have sold off on geopolitical instability. According to one piece of analysis I’ve read, there have been 54 crisis events since 1907, during which the Dow Jones Industrial Average fell an average of 7.1% during the period of the crisis but gained an average of 9.7% in the six months after the crisis ended.
One potential reason a war involving Russia – and the significant economic sanctions that will follow – is scaring markets is that Russia provides such a large percentage of Europe’s energy needs. In a market skittish about inflation and the rising cost of energy, higher oil and gas prices increase the risk of an even faster tightening agenda for central bankers. Yes, it’s possible the supply impacts from a war would be temporary and factor into policymakers’ thinking (not to mention that monetary policy might be a blunt tool if energy prices are being driven by supply issues), but it’s the uncertainty that is likely scaring markets for now.
With global economies continuing to surprise with their collective strength, it is hard to see the current selling as likely to be sustained. There is an air of panic to the weakness and, despite human emotion remaining investors’ worst enemies, we know that panic brings the best long-term buying opportunities. The low may not be today, it may not be tomorrow, but we know buying today is better than buying when the market was 10% higher.
Meanwhile, our thoughts are with those directly affected in Russia and Ukraine, and those in Australia with families being affected. Our hope remains that this can come to a quick and peaceful conclusion, even if that looks unlikely today.
