With the Russian-Ukrainian conflict overwhelmed in the past two weeks, investors must be wondering whether it is appropriate to invest in stocks amid the war crisis.
Whether it is suitable to invest in stocks will be discussed later, but the impact of the Russian-Ukrainian crisis and the upcoming Fed rate hike cycle on the market will continue for some time in March.
Although wars and interest rate hikes have different meanings for the market, from historical experience, we will realize that the two have something in common, that is, uncertainty will bring market volatility and cause the market to decline. The key point is how far-reaching the impact is. and whether the market has responded adequately.
The war crisis and the Fed's interest rate hike can be said to be linked to each other. Whether the war crisis will damage the economy and slow down the pace of interest rate hikes by central banks around the world, or cause inflation to accelerate the rate hike process, it remains to be seen how the situation develops, and the results will affect the market in the end. trend.
When we look back at the past wars and the start of the rate hike cycle, we point out that the effects of both tend to be short-lived and advanced.
With reference to the Second Chechnya War in August 1999, the Afghanistan War in October 2001, the Iraq War in March 2003 and the Crimea Incident in March 2014, the above four events all triggered a correction in the MSCI Global Index ranging from 2.7% to 2.7%. 19%, but stocks generally rebounded one, three, and six months after the event.
On the other hand, in the past, most of the adjustments triggered by the Fed's rate hike cycle occurred before the rate hike, and the stock market has a higher chance of rebounding after the rate hike starts.
At present, the potential problems caused by Russia and Ukraine remain to be seen, but if it is assumed that the Russia-Ukraine incident will not trigger a large-scale international war and the duration is relatively short, the market will still return to economic fundamentals.
Although the current rising inflation and rising labor costs will have a certain impact on the future economy, the US 10-year minus two-year interest rate curve has flattened during the interest rate hike period, but the interest rate spread has not yet inverted.
In 2020, the impact of the epidemic on U.S. stocks is another matter. Historically, the average U.S. stock market did not peak until nearly a year after the interest rate spread inverted, and the economic recession will also appear some time after the peak of the stock market. Therefore, before the war and the rate hike cycle start The pullback is waiting for low absorption and waiting for a rebound, and there should still be room for potential returns.
From the perspective of asset allocation, there are two points that investors need to pay attention to.
First, if the event weakens global economic growth, it will eventually have an impact on the stock market outlook; second, the Russia-Ukraine event will have an impact on potential inflation.
The size of Russia's economy accounts for about 2% of global GDP, so it should be difficult to have a direct impact on the global economy. However, Russia is an important exporter of natural resources, and the incident will further lead to uneven supply and demand of global resources.
Although the incident subsides in the short term, commodity prices have room for correction, but the effect of sanctions and the inflation caused by the economy under the epidemic cannot subside in the short term, so commodity prices are still on an upward trend.
Investors can add commodity investments to their investment portfolios to hedge against potential resource crises caused by the current economic cycle and the Russia-Ukraine issue.
Gao Yaohao is a senior wealth consultant in the Wealth Consulting Department of the Personal Digital Financial Products Department of Bank of China (Hong Kong), and is good at tracking market changes and analyzing investment market trends by combining global macro factors with technical analysis.
With many years of experience in managing investment advisory teams, he also serves as a mentor in courses organized by professional organizations in the industry, sharing investment and financial planning knowledge and experience with the industry.
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