In times of war, look hard before leaping to sell

War usually brings about uncertainty, and the natural reaction for some investors can be to sell during these times. History shows that selling at the start of a conflict can be a hazard to long term wealth.

Clay Smolinski, co-Chief Investment Officer and Portfolio Manager at Platinum Asset Management says that looking back on nine of the most significant global geopolitical shocks over the last 30 years, the markets tend to look through the periods of geopolitical conflict.  The table shows the ‘standard’ experience is for share markets to initially fall in the first week and month post the event, and then the market to recover over the following months as the conflict is unlikely to have a lasting material impact on economic fundamentals or company profits.


Smolinski highlights that the First Gulf War in 1990 and the Russian invasion of Ukraine in early 2022 follow a different pattern where markets failed to recover 12 months after the event.  He argues that the long term negative stock market reactions in those situations were due to factors other than the geopolitical tensions, such as the oil price shock in 1990 and 1991 and the increase in interest rates in 2022.  In the case of Russia’s invasion of Ukraine, the MSCI AC Europe index is near all time highs nearly two years after the start of the war.  

Hugh Dive, Chief Investment Officer from Atlas Funds Management believes that investors should think about the companies they own in their portfolio and the actual links to the conflict in question.  For example, is the military conflict likely to impact CSL’s sales of life saving biotherapies or will the conflict impact Woodside’s LNG sales or what consumers buy at Bunnings.

If the conflict is unlikely to impact sales in the companies investors own, then the initial share market panic can present a buying opportunity for long term investors according to Dive.  

Smolinski says that investors should consider the unique aspects of each conflict.  The stock market returns outlined in the table above are largely made up of countries where the conflict was not happening on their own home soil. Investments in Russia post the Ukraine invasion fared very differently.  

Smolinski believes it is important to think ‘will this business be bigger and stronger in 5 years time?’  if the answer is yes, a pullback in prices can provide a buying opportunity.

With reference to the current conflicts, Smolinski points to the risk that the focus on the Israeli/Hamas war diminishes the attention on Ukraine and gives Russia time to refocus, rebuild and carry on its war in the Ukraine.  The resistance effort within Ukraine requires continued aid from the US and EU and should this aid be diverted to the Middle East, it may change the calculus around ceasefire treaties from the Ukrainian perspective.

Platinum is also paying attention to the role China is playing on the world stage during these conflicts.  In particular, the uncomfortable position they are maintaining keeping Russia as an ‘ally’, whilst also keeping trade routes open and maintaining trade with both the US and the EU.  

Dive thinks the key risk in the middle east is if the conflict widens as it did in 1914 from a conflict between Austria-Hungary and Serbia, to engulf Europe.  This could disrupt global oil flows and the corresponding spike in energy prices would have a negative impact on the global economy.

Investors should continue to monitor these issues.

Dive says that investments that typically perform well during wartime include defence companies, energy companies and commodity companies particularly gold for its ‘safe haven’ status.

Investors can be drawn to other ‘safe haven’ investments such as food retailing, but care should be taken to ensure investors do not overpay for these assets simply to hide during geopolitical tension.

Smolinski suggests investments that can struggle during conflicts include airlines due to increased energy prices and reduced demand for travel.  Financial stocks also have been consistent underperformers during conflicts, with insurance stocks faring the worst.

The geopolitics of today’s world is uncertain, but it always has been.  Investors need to keep newsflow in perspective and act on information rather than running with the herd.


Mark Draper writes monthly for the Australian Financial Review - this article appeared in the 15th November 2023 edition.