The week which shook the world

The week which shook the world

The invasion of Ukraine has shaken emotions and certainties as the world watches a growing humanitarian disaster. The reactions of global markets, which had misread President Putin’s strategy as much as many politicians, were similarly sent into crisis mode.

On Thursday 24 February, Europe woke to the news that Russia’s forces had entered Ukraine from the north, the east and the south of the country following a substantial military build-up on Ukraine’s borders as far back as last October.

By their very nature, investment markets react to surprises. When a company produces better than expected results, its shares will often rise. When the global economic outlook suddenly becomes uncertain – as happened on 24 February – the markets’ reaction is to retreat and reconsider.

It is too early to gauge the effects of sanctions and companies withdrawing and divesting from Russian markets. We do know the effects will be felt not only in Russia but more widely. For long-term investors, the market fluctuations such as those we have seen since 24 February will seem much less dramatic than they do now when looked back on in years to come.

The short-term fluctuations are instant reactions to the relentless news flow, influenced by short-term traders. At the time, such moves can feel significant, but look at market graphs covering five years or more and they can be hard to spot.

None of us can foresee when the dips and rises in the stock market are going to happen. Which is why timing the market by withdrawing investments into cash and re-investing ‘later on’ is not a wise idea. Judging when is the right time ‘later on’ is nigh on impossible.

To demonstrate the difficulty in forecasting let’s have a look at the FTSE 100 share index over the recent weeks since Russia’s invasion of Ukraine on 24^th February:

In the first day the FTSE 100 dropped 291 points from 7498.  At the end of the first week it had rallied to finish only 0.3% down from the start of the week.

In the last 4 weeks to the date of this article it has dipped below the 7000 mark, only to recover to 7442 as of now (Stock market close on 21^st March 2022).

Consider also the perspective of how stock markets can change quickly. At the start of the Pandemic – on 15^th February 2020 the FTSE 100 sat at 7403. Just a month later it had slid to 5190 on 14^th March.

And if we are searching for a benchmark of how low it can go look no further than the recession of 2008/09 when it dipped to 3830 in February 2009.

Comparing today’s (21^st March 2022) value of 7442 against such low points there is a long way to fall to the lows of the pandemic and recession. And there are many events which could affect the stock markets one way or another this year. Let’s examine a couple of the main ones:

Last year the UK economy grew by 7.5%, one of the highest in the World. Now while tax revenues have been higher than forecast so far this year, there are challenges ahead as the cost of living increases bite, primarily due to high energy and food prices. Savings built up over the pandemic are keeping some families going, though it’s likely that reduced expenditure on non-essential items will dampen consumer spending and affect economic growth over the next year. This could have an overall negative effect on share values.

In the event there is a negotiated peace settlement between Ukraine and Russia it’s likely that markets will bounce, maybe even close to record highs. Confidence maybe born more from a sense of relief than any rational data. Then they could settle to a level reflecting more the economic reality of the country at that point.

With even just those events yet to play out it will be a brave (or foolish?) soul who thinks they can call the timing of market dips or rises. Here at Oaklands we do not possess a crystal ball and instead prefer to keep a weather eye out for any longer-term changes which may be needed for your portfolio. Meantime sticking to the formula which has served our clients so well over two decades.

As you will know from your review meetings we have ‘Asset Allocation Models’ which guide your investments into a split of equity shares, bonds and fixed interest investments.

By way of example, in our most common group of clients aged 60-69 in the moderate risk category this equates to 32.5% in UK equity shares, 15% in international shares and 52.5% in bonds.

The bonds will provide the element of stability and the continuing proportion of equities the growth potential over time as companies do well and markets rise. We feel the two-to-one split of UK to international shares gives the right balance in favour of companies who will weather the global storms better than most over the coming years.

UK stocks may not have been in as much in favour as the fashionable high growth/highly volatile US based tech stocks over recent years. What they have by contrast is excellent defensive characteristics in industries such as energy, banking, and food and beverages, which are a necessary part of life regardless.

Within most of our client portfolios are investments in huge corporations with a longer-term stability borne from size and widespread customer demand. Here are three examples:

GlaxoSmithKline (GSK) is a British multinational pharmaceutical company headquartered in London. Established in 2000 by a merger of Glaxo Wellcome and SmithKline Beecham

Diageo plc is a British multinational alcoholic beverage company, with its headquarters in London. It operates in more than 180 countries and produces in more than 140 sites around the world.

Experian – an Anglo–Irish multinational consumer credit reporting company, it collects and aggregates information on over 1 billion people and businesses worldwide.

On consideration of the three main concerns at the moment: The Russia/Ukraine conflict, rising inflation and an income squeeze to UK households, we recommend our current splits of diversification and keeping to the portfolio we have set out for you.

Interested in finding out more?

Seeking a second opinion on your financial future costs you nothing.

Simply call our friendly team on 00121 368 5624 or drop us an email to appointments@oaklandswealth.com to arrange a confidential chat.

Oaklands Wealth Management, founded by Helen Blackburn in 2004 advises clients around the Midlands on retirement planning, pensions & investments.

Her firm holds British Standard BS 8577 for client service & investment process.

Minimum investment is £500,000 (£650,000 for pension transfers).