For private investors, these are very unsettling times. The Russian invasion of Ukraine sent markets into a tailspin, and even those who usually shrug off turmoil could not suppress a shudder.
Although markets rebounded yesterday, the falls on Thursday were considerable, causing many to wonder whether to keep calm and carry on, or to take action.
At this moment of peak uncertainty, it’s useful to remember that, as Richard Hunter of Interactive Investor puts it: ‘Investment is a marathon not a sprint.’
Most experts recommend sitting tight until the outlook becomes clearer.
But while watching and waiting, an audit of what your portfolio contains would be handy.
As Jason Hollands of Tilney points out, very few UK investors have direct exposure to hard-hit Russian or Ukrainian mining shares, such as Evraz or Polymetal, though you may be indirectly invested through a trust or tracker fund.
But Goldman Sachs has compiled a list of other firms that have stakes in Russian businesses. Among them are BP, Shell, Alstom the French train manufacturer, Glencore, the mining giant and Prosus, the Dutch internet group. These could, potentially, carry a larger degree of risk.
It is important to see this week’s events in context.
It may be some consolation, for example, that Thursday’s share price descent ranked only as number 186 in terms of the most severe single day declines since records began.
However, more volatility lies ahead. It is unclear for how long this could last, although history may offer lessons. Hollands says: ‘our study of 25 geopolitical crises, starting with the Cuban missile affair, found that, on average, losses on the S&P 500 index in the US were erased within a month.’
According to Jonas Goltermann of Capital Economics: ‘The best comparison might be the First Gulf war. The major indices dropped 20-25 per cent after Iraq invaded Kuwait in 1990.
‘But they stabilised as the Federal reserve cut interest rates and rebounded once US intervention ended the war quickly.’
If markets follow this path, he says ‘another 10-20 per cent fall from here is quite plausible’.
However, the repercussions of these major events are rarely predictable. For example gold, normally seen as a beneficiary of global instability, attracted only a degree of investor interest. Cryptocurrencies, which were supposed to be the new hedge in periods of adversity, tumbled in value.
While looking to the long term, revising some of your short-term expectations is also key.
Interest rates in the UK and the US may not move upwards as sharply as thought even a week ago. In Britain, higher energy prices could suppress consumer spending, especially when income tax and national insurance increases start to bite.
Some shares were left relatively unscathed in the rout.
They included what Russ Mould of investment platform AJ Bell calls ‘the classic defensive names such as United Utilities, SSE, Tesco and Unilever’.
This could mark the start of a flight to quality, a trend that is characteristic of a challenging era.
But only those who delight in thrills and spills should start buying now, as investment guru Justin Urquhart Stewart emphasises.
‘For investors, we should look upon this awful political and economic confusion as a potential opportunity to buy up assets at a real discount,’ he says. ‘But that is certainly not a call to invest while in the midst of such a maelstrom of confusion.’
Amid this maelstrom, however, there will be an ever greater focus on the impact of the soaring cost of energy.
Rathbone’s David Coombs says: ‘This means it is worth looking at the US, as its economy is less reliant on energy from this source.
‘There should be some excellent returns from major US technology stocks whose share prices have come off so far since their peaks.’
It is possible that soaring energy costs could dampen the post-Covid reopening of the economy. But shunning the UK market would not make sense, as Hollands explains.
Interest rates may still move upwards, and the markets here are more attuned to sectors that are resilient against inflation and rising interest rates than those in the US.
Right now, I am minded neither to buy nor sell. I am staying vigilant and hoping, like everyone, for better times.