The impact of the Ukraine crisis – what you should do as an investor?

Financial markets are inextricably connected to the news cycle and those amongst us who are not armed with a treasure trove of financial knowledge may feel lost in the event of certain developments on the national or international front. Those not privy to financial jargon may feel that the Russian invasion of Ukraine and its possible impacts needs decoding.
As markets continue to exhibit volatility it may not be judicious to liquidate investments in haste.
As markets continue to exhibit volatility it may not be judicious to liquidate investments in haste.
Published on Mar 31, 2022 06:19 PM IST
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ByHT Brand Studio

On Feb 24, 2022, the world woke up to the startling realization of the largest geopolitical conflict being triggered since World War II. Russian President Vladimir Putin announced in a public address that he had authorised a military operation in Ukraine. The news sent the global financial markets into a tizzy and panic engulfed the investor fraternity. With the war continuing for more than a month now and Western countries imposing a slew of severe sanctions to cut off Russia from the world’s financial ecosystems and the economic implications of the war continue to unfold, investors find themselves wrestling with yet another tide of uncertainty after COVID-19.

Financial markets are inextricably connected to the news cycle and those amongst us who are not armed with a treasure trove of financial knowledge may feel lost in the event of certain developments on the national or international front. Those not privy to financial jargon may feel that the Russian invasion of Ukraine and its possible impacts needs decoding. It may be easy to draw generic inferences such as the ripples created in the global economy due to the disruption in the supply of Russian oil and gas brought about by the war and the subsequent sanctions. However gauging the impact of these – both short-term and long-term on their portfolio of investments and accordingly formulating a course of action or deciding whether any action is warranted in the first place can be tricky for a large section of retail investors.

Sarvesh Singhal (name changed), a 36-year-old banking professional based in Kolkata narrates, “In my investment journey of 13 years, I have realised that sometimes taking no action, especially in the early days of such an event which has the possibility of getting protracted is better than panicking and taking decisions in the spur of the moment. Yes, the Russian invasion of Ukraine can have significant repercussions on the Indian stock markets and economy but drastic changes to one’s portfolio should not be the first line of thought – that can do more harm than the actual event itself.”

As markets continue to exhibit volatility it may not be judicious to liquidate investments in haste. This is because despite the short-term scenario continuing to be choppy due to the Russian invasion of Ukraine, it is important to bear in mind that the stock market has witnessed all sorts of turbulent events in the past like wars, pandemics, political instability and has managed to shrug off the impacts and bounce back eventually. Also, any move to liquidate any investments in the current scenario should include due considerations of other factors such as the performance of the asset class, whether any of your goals can be hampered from the current disturbances or the possibility of being impacted directly – for instance owning large volume of stocks in a company which relies on Ukrainian or Russian businesses for revenue.

Shalab Gupta Bibhab, founder of Bibhab Capital says, “As a millennial investor we tend to have a recency bias and chase returns. This mini war has created upheavals in the global financial market with equities correcting and commodities and gold moving up. So new age investors should not get carried away by these abnormal returns in commodity space and instead take advantage of this correction in the market and build a robust portfolio with gold and commodity mutual funds as a part of the portfolio for an asset allocation purpose only.”

While events like wars are unfortunate incidents with the power to irrevocably alter the future for a large chunk of the global population, the short-term market tremors can be tapped into by long-term investors. Shah says, “As a retail investor who has been in the investing game long enough, I have learnt that every time there is a correction, investors become engulfed with fear. However, this can be a good time to pump up your investments because chances are numerous large-cap and blue-chip stocks can be availed for much cheaper rates. And for those for whom it is feasible, this can be a good time to tweak asset allocation too momentarily to tap into the capital appreciation opportunities presented by the current changes in the prices of gold and commodities.”

Given that it is impossible to precisely predict the amount of time it will take for the markets to rebound from the blow wielded by the Russia-Ukraine crisis, it can be a good idea for investors with low-risk appetites to invest in low-risk debt funds or ETF and gradually channelize into equity funds at a later date using a systematic withdrawal plan when the markets exhibit less terrifying patterns.

Key takeaways

- It is important to stay abreast of the latest developments for the sake of your finances so that you can analyse with a fair degree of accuracy as to what piece of news can impact my finances and how.

- If you feel that the recent events pose a threat to your portfolio, it is best to seek professional advice before taking any decisions.

- Keep an eye on the authenticity of information you consume. It may be easy to slip into bogus narratives circulating on social media that may not at all have any connection with reality.

- New age investors should not get carried away by these abnormal returns in commodity space and instead take advantage of this correction in the market and build a robust portfolio with gold and commodity mutual funds as a part of the portfolio for an asset allocation purpose only.

This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.

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Wednesday, May 25, 2022