Zenith Investment Partners has warned investors against hasty portfolio decision, noting that the “best defence during times of uncertainty is a robust portfolio construction”.
“Periodic and sharp falls in markets are normal, and attempting to tactically sell and re-enter is notoriously difficult to achieve,” investment consultant Calvin Richardson and head of asset allocation Damien Hennessy said in a statement on Tuesday.
“Historically, geopolitical events have resulted in aggressive sell-offs, followed by relatively swift recoveries, so we implore investors to retain their long-term investment strategies,” the pair said.
According to Mr Richardson and Mr Hennessy, while maintaining a dispassionate outlook amid a fog of war may be difficult, “markets will bottom well in advance of a positive shift in investor sentiment”.
“This suggests that making reactive or hasty portfolio decisions could be to the detriment of meeting your long-term objectives,” the Zenith experts explained.
Looking at history, the pair said the 11 September terror attack and Iraq’s invasion of Kuwait in August 1990 offer lessons investors should heed.
“The September 11, 2001 terror attacks saw markets decline by around 12 per cent over a 10-day period before recovering these losses within a month. Iraq’s invasion of Kuwait in August 1990 saw the S&P 500 drop almost 15 per cent per cent over the following 70 days, before reclaiming this lost ground six months later.
“While the initial response to the uncertainty of conflict is fear and the search for safety, we believe that in navigating the way forward, investors need to understand the economic backdrop, the prevailing trend, and the potential for flow-on effects to growth, inflation, and policy responses,” the pair cautioned.
“For example, in the 1990 and 2001 events mentioned above, the US economy was in or near recession, policy was being eased and there was plenty of scope to ease policy further. The dominant theme and the backdrop to the current conflict is one of rising inflation, tight commodity markets and generally strong growth, with central bankers poised to bring policy rates closer to so-called neutral over the coming 12 months.”
Noting the shockwaves Russia’s aggression has sent through financial markets, the experts conclude that while the temptation to sell into this weakness is understandable, accurately predicting the trajectory of geopolitics is fraught with danger.
“We caution investors not to succumb to emotive impulses during heightened market volatility, as indiscriminate selling is often followed by sharp relief-rallies which active managers can exploit.”
Maja Garaca Djurdjevic
Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.
