Russia Ukraine Crisis – Will it matter to your investments ?
Posted By: Admin
What could be the immediate impact of the crisis?
A spike in the crude oil and natural gas prices has resulted in Brent crude prices rising up. Russia is among the world's largest exporters of oil and gas.
Other impacts may be global investor shifting sell off mode or potentially even panic selling.
But if we go back and see in 2014 sanctions against Russia hardly had an impact on the global economy / stock market. Post the invasion of Iraq too, oil prices moved up during 2003 – 2007 but in spite of the same, the stock markets rallied at that time. So how come it would be different now.
So is the Russia Ukraine Conflict the reason for this correction ?
Here’s our view of some of the reasons for the markets to react with a correction.
- Russia – Ukraine conflict
- Brent crude prices raised.
- US Inflation ( 40 year High)
- US Fed expected to hike
- FII outflows ( due to points 3 & 4 above)
Should retail investors worry about these market corrections ?
If we look back, due to covid pandemic, the market went down. On 24th March 2020 Sensex was at 26,674. There were many predictions made that the market would crash and many people were very sure that the Equity Markets were going to reach a new low level. But we saw what happened exactly. Those who waited patiently found that their investments bounced back with double digits. On the contrary those who went out the market expecting further drop, could not re enter as the markets returned rapidly up and in fact went to a lifetime high as well. Therefore Patient investors gained significantly as compared to investors who were trying to time the markets.
Two things we need to keep in mind about the market. One is we cannot predict the market and we cannot predict the event which will affect the market.
Before it was covid, due to which the market went down now its due to Russia and Ukraine issue. Tomorrow it might be due to some other reason. So, let’s stop thinking about what will happen, what to do and what might happen. Better we should think about what we should do in the fall.
History tells us that “Buy when there is blood on the streets” is a good strategy, particularly during geopolitical crises. Saddam Hussein’s invasion of Kuwait, the Kargil war, Russia’s annexation of Crimea has all been good buying opportunities. History may repeat itself.
What needs to be done?
We should remember that the market will have many ups and downs, so it's very important not to react immediately. Sometimes not doing anything might be the right thing to do.
Should always follow the asset allocation and as well as diversify the portfolio so that it protects you when the market is going through some bad phase.
If you are, are you planning to invest now?
Immediately can park into debt funds and can deploy around 20 to 30% directly into equity and balance into STP (Systematic transfer plan). So that if there is further fall you can slowly move the money from debt to equity. The idea is to accept the temporary fall and should think on how to take advantage of it.
Conclusion:
Market fall would be there every year. The reason for fall will change from year to year but the percentage of fall would be almost the same. So, we should not worry about the short term fall. If your investment tenure is long term then you need not to worry on short term fall. Instead of worrying, we should take advantage and use the opportunity of short-term fall. Use STP, SIP way of investments during market volatility. "With a good perspective on history, we can have a better understanding of the past and present, and thus a clear vision of the future."
Do we need to pay attention? Yes, we do, but thoughtfully. Personally, as a citizen, I am worried and monitoring the situation closely. But as an economist and investor, I am much less concerned. And that is a distinction to keep in mind going forward.
By Bhuvaneswari, Sherpani
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Category Finsherpa | Tags Financial Freedom
