CRAIG FEATHERBY: How and why investors can find calm in these volatile times

Many investors will have been watching markets in recent days with deep unease. As in any crisis, the way to weather the events to date and those still to come will be remaining calm and taking considered action.

Before Russia’s invasion of Ukraine inflation was already a challenge in many countries. Supply chains were clogged because of the pandemic and the shift to consumer goods over services. The US was looking at the measures possible to address their own inflationary pressures, and quantitative easing in particular, was likely to affect developing countries, including SA. We had also seen a sell-off of the more speculative, disruptive stocks in recent months in favour of those with more predictable earning outlooks.

However, recently the world has seen upheaval with the conflict in Eastern Europe. The situation is having far-reaching consequences for markets across the globe as well as businesses, which will compound these pre-existing pressures.

As deep, broad and unprecedented sanctions are implemented by the EU, Nato members and others, the waves and ripples are being felt by business and investors alike. From no-fly zones to exclusion from the Society for Worldwide Interbank Financial Telecommunications (Swift), it is important to remember that the impact of these measures is going to be wider than Russia. Companies and individuals who have business dealings with Russia will be affected by, among other things, their ability to pay for or be paid for services and goods and the ability to trade in certain goods as exports on certain product categories are sanctioned.

There is also going to be, and already has been, an effect on commodities, which is likely to persist over the short term at least. Wheat, oil, gas and metals, including palladium and nickel, among other things, are likely to see a somewhat sustained price jump given that Russia is a producer. The price of Brent crude, already high before the conflict, has spiked over concerns of further supply constraints related to the conflict and sanctions, and there is no indication that Opec will increase supply to ease that pressure — as indicated by the announcement on March 2 that it would continue with its commitment to an Opec agreement with Russia, despite widening sanctions on Russia.

Private companies are also responding to the conflict — shipping companies Maersk, MSC and CMA CGM have all announced a form of halting non-essential shipping to Russia. This as other companies such as Visa, Mastercard, Apple, BP and others have made their own similar announcements.

Russia itself is entering the fray. Reuters reported on March 1 that Prime Minister Mikhail Mishustin had announced at a governmental meeting that there would be a presidential order to curb foreign investors from divesting their Russian interests over the short term. On March 2 they reported that the Bank of Russia was banning coupon payments to foreign owners of rouble-denominated sovereign debt, as well as banning Russian companies from paying dividends to foreign shareholders.

One would be forgiven for reading to this point and wondering why investors should remain calm. These are indeed unprecedented and unpredictable times and markets have most certainly reacted accordingly. This is to be expected, and I posit that we will continue to see market swings as the situation develops. No investor has a crystal ball in a situation such as this; information will probably remain fluid, with volatility persisting in the coming days, weeks and even months.

However, there is historical evidence to support taking a calmer, more measured approach over the medium to long term. While the conflict and response to it are and an exact parallel cannot be drawn with prior geopolitical events, history gives us comfort. If we look at the S&P 500 since the early 1940s we can track its performance after big moments of geopolitical upheaval (think Pearl Harbor or the Iraqi invasion of Kuwait). The results show that equity markets tend to favour a positive outcome (show a gain) in the 12-month period after such events. This was true in 75% of cases when looking at the S&P 500 since the early 1940s.

Against this backdrop decisions on investor portfolios will need to be assessed against all relevant factors, such as economic growth forecasts, global inflation and central bank interest rate expectations, and not volatility alone. The supply-demand dynamic in commodity markets is also going to be of equal importance. It stands to reason then that a well-informed, long-view approach to investments is the wisest choice for investors right now. An approach such as this needs to be taken with a profound sense of calm because it must eschew the urge to “time the market”, which generally has poor outcomes.

Rather, investors must look to those who manage their wealth to ensure that an emphasis on return over the short run does not displace the importance of well-informed, longer-term risk identification and management of a diversified portfolio at every stage of the investment process.

2022 will probably continue to remain volatile. Investors can find a sense of calm in historical trends and by ensuring their portfolios are overseen by investment managers with proven long-term track records and experienced investment teams who have managed assets through various market events.

• Featherby is the CEO of Carrick Wealth.