History has shown that in the midst of most conflicts, stocks do tend to falter, but after a while, markets have been known to shrug off these concerns, choosing to focus more on the actual growth of economies. Investors will do well to navigate investments without letting fear get the most of them. — Photo: Freepik
IS investing today the same as it was 20 years ago? Yes, and no.
While some basics have remained unchanged, risks — especially geopolitical risks — have increased exponentially. Throw in global changes such as the transition from fossil fuels to renewable energy, the growing importance of ESG and the increasing number of alternatives, investing has indeed become much more challenging.
But, as they say, the only constant is change.
That said, what can today’s investor do? Focus on the long-term, for one thing.
A J.P. Morgan Private note says it is vital to understand that geopolitical events generally do not have a long-lasting impact on investment portfolios. While disruptions can create short-term volatility, economic growth, innovation and a diversified portfolio can help investors achieve their goals over time.
At the same time, where risks lurk, opportunities may also arise.
It is for this reason that J.P. believes that four areas of thematic plays — national defence, energy provision, supply chains and cybersecurity — will continue to be in focus.
Since around 2012, wars or armed conflict around the world have been on the rise after a lull which occurred between the 1990s and early 2000s.
Today, global armed conflict is at an 80-year high.
Some of the “active” wars that are ongoing include those in the Middle East and Europe. Additionally, tensions between the world’s two economic super powers, the US and China, are also ongoing.
Just this week, US president Joe Biden slapped new tariffs on Chinese electric vehicles and other equipment and items like batteries, solar cells, steel and aluminum as well as gloves and syringes.
China immediately vowed to retaliate, upping the heat between the two countries.
Tensions or armed conflicts generally are bad for stock markets as a whole. At least, for a while, investors are likely to see a sea of red.
The impact is not the same for all stocks, though.
Generally, stocks that fall in times of conflict are those related to tourism and travel.
As an example, from the time news on the military conflict in the Middle East surfaced last October, stocks like Norwegian Cruise Line Holdings Ltd have been badly hit, coming down by double-digits.
Stocks related to countries involved in conflicts have also been hit.
Likewise, should China’s well-known tensions with Taiwan go up a few notches, Chinese stocks that are listed in the US such as Alibaba and PDD Holdings could also see the same effect.
The same goes for US shares that are linked to China in any way such as Qualcomm Inc.
To be sure, even semiconductor companies like investor darling, Nvidia Corp. which depends heavily on global chip company Taiwan Semiconductor Manufacturing Co. Ltd (TSMC) to run its business, will be affected should production at TSCM get halted by global conflict.
On the other hand, stocks in the defence space have done relatively well in the last six months or so.
According to a US News & World Report article, shares of unmanned aerial vehicle company AeroVironment Inc. have gained nearly 30% in the past six months.
Similarly, the shares of military aircraft parts maker TransDigm Group have increased by 32% since Hamas attacked Israel.
The report noted that from Jan 29, stock prices of defence giants RTX Corp. and Textron Inc. are also up more than 7% each, while the broader S&P 500 is up 3.3% over the same period.
History has shown that in the midst of most conflicts, stocks do tend to falter, but after a while, markets have been known to shrug off these concerns, choosing to focus more on the actual growth of economies.
Investors will do well to navigate investments without letting fear get the most of them.
This article first appeared in Star Biz7 weekly edition.
