Angela Ashton
With underlying post-pandemic economic and market conditions, namely concurrent inflation and volatility, being an unfamiliar backdrop for investors, there is risk that the Russia-Ukraine situation won’t play out as a typical wartime market recovery, says Angela Ashton, Director and Founder, at Evergreen Consultants.
“Given the current outlook, in our view, traditional safe-haven assets such as cash, gold, long duration bonds, and some highly traded real assets such as commodities, could be considered for portfolios.”
Ashton notes: “If we are to be guided by history, markets often sell-off in the lead-up to an armed conflict due to heightened uncertainty, but typically recover once war has commenced.
“Current underlying economic conditions could mean that market outcomes are less satisfactory if the conflict cannot be contained, especially if central banks make a policy error.
“The best-case scenario is that any conflict and sanctions are short-lived and energy prices retreat to levels that do not add further impetus to rising consumer and producer prices. This will reduce the risk of a policy error and potential for an economic and market malaise.”
While it is reassuring to point to history as a kind of security blanket for ultimate market outcomes, the present situation could play out quite differently, says Ashton.
“In examining sharemarket behaviour over the past hundred years, we think it is particularly important to note that uncertainty in the pre-war phase is mostly focused on what the response of the superpower nation is going to be (typically, this has been the US) and how this might impact financial market liquidity.
“An ongoing high inflation environment would likely be negative for many asset classes.
“While this is not our base case, we will be watching for further evidence on likely inflation trajectories and exploring measures to insulate client portfolios from the new challenges this would bring,” says Ashton.