War on Ukraine – a global investor outlook

The current crisis has caused a new bout of volatility in the world stock markets.

Here investors can get some answers to some of their concerns.

What’s the latest for global financial markets?

Ukraine’s economy has sparked a “stagflationary” shock among certain markets, which means lower growth and higher inflation. The size of this shock is still to be determined. It will create three channels of impact.

First, higher prices for commodities like food and energy will push up inflation further, further eroding the value of incomes and weighing on demand.

Second, those geographically closer to the conflict will suffer greater short-term disruption from associated supply chain delays.

Third, business confidence will likely suffer a blow, while higher investor uncertainty will translate into tighter financial conditions.

Is there a risk of central bankers pushing the global economy back into recession by pushing up interest rates?

Yes, that is certainly a risk – particularly over the next 24 months. Meanwhile investors have been betting on and off that the Bank of England, for example, will be cutting interest rates again within a relatively short time frame. However, our in-house indicator is currently suggesting a relatively low probability of a recession right now.

At the moment interest rates at most maturities in the majority of the largest economies will likely remain very affordable relative to realistic prospective growth rates.

Meanwhile the banking sector in much of the developed world looks to be well capitalised and significantly better insulated from systemic risk than in the run up to the Great Financial Crisis, for example.

Should I feel nervous about investing?

Stock markets remain volatile to say the least. Investing your hard-earned savings today, even into a very diversified spread of investments can feel unnerving at such moments. It is always easier to get invested when markets are calm.

However, while it may feel better to invest in calmer waters, there is no evidence to suggest that the level of volatility you start investing in has any relationship to the long term returns you are looking to achieve.

The message for investors is the same, it is important to consider keeping an investment foot in all corners of the market, including some of the dustier corners, for those looking for a smoother long-term journey.