Capital IdeasTM

Investment insights from Capital Group

Market Volatility
Staying the course

Russia’s military aggression against Ukraine, which has become Europe’s largest ground war in generations, has impacted millions of people and triggered a large-scale humanitarian crisis as vulnerable Ukrainians take shelter or flee their homes. The intensification and spread of the conflict is deeply troubling and is having a devastating impact on those people caught in the crisis.

This article focuses on potential market and economic implications of the conflict.

Russia's invasion of Ukraine has sent shockwaves throughout the world. With more questions than answers and even fewer clues as to what the end game could be with regards to the escalating conflict, the natural reaction for investors is to adopt a ‘risk-off’ approach and take comfort in safe-haven assets.

Looking back at similar geopolitical events over the past four decades and using the S&P 500 as our reference, equity markets did experience short selloffs at the onset of these incidents. Over a longer timeframe, however, equity markets have consistently been able to power through such geopolitical volatility and come back stronger than before. This has proven true be it the First and Second Gulf War, the 9/11 attack, Russia’s invasion of Crimea or the US-China trade war. 

Equity markets have historically powered through geopolitical events

charts sp historical events

Sources: Capital Group, Refinitiv Datastream, Standard & Poor’s. Chart shown on a logarithmic scale. Index levels reflect price returns, and do not include the impact of dividends. As of January 31, 2022.

Even though investors should by now be familiar with the standard ‘past performance is no guarantee of future results’ warning, the chart does offer a strong argument that rushing for the exit sign whenever geopolitical tension rises may not be the wisest option. This is particularly true when it comes to the Russia-Ukraine conflict as the situation remains very much fluid. Consequently, the possible outcomes for politics, the global economy and markets are even less clear at this stage.

This current situation, while concerning and disruptive for so many, is an ample reminder of the benefits of long-term investing. In addition, turmoil and steep market declines can provide opportunities for active managers. Instead of reacting prematurely to market volatility, greater value could be found by adopting a long-term view in identifying and investing in companies with enduring and appealing prospects.

Past results are not a guarantee of future results. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.

Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.