This week markets continued to weigh up the likelihood of a Russian invasion of Ukraine. Which has now come to fruition as we woke to the news that Russia has taken action. This has led to an inevitable sell off in markets around the world but Russia’s attack on Ukraine is just the latest macro event that has caused investors to be concerned about equity markets.
While the potential human consequences are particularly worrying, we know from even the recent past that huge events don’t always cause long term issues for markets.
The people of Ukraine are central to everyone’s thoughts today and we are extremely worried about the conditions they are going to face, but for investors now is not the time for making snap decisions.
Last week gave us an example of how quickly things can change. At the beginning of the week, geopolitical tensions rose and equity markets sold off as bonds rallied. Towards the middle of the week we heard stories that Russian troops were withdrawing from the Ukraine border. Equities rallied and bonds sold off. Then towards the weekend the view emerged that more troops were assembling at the border and equity markets went into reverse again.
Seeing investment prices fall, sometimes with alarming speed, can cause extreme worry for even the most experienced of investors. The fall is very likely to be down to market conditions rather than anything to do with the content of a fund, and in many cases, given enough time, investments should hopefully recover their value.
Markets find it virtually impossible to price in geopolitical events, hence the daily volatility we are seeing, company results continue to come through thick and fast. More than three quarters of US company earnings have beaten market estimates, with year on year earnings growth running on average at 28%. In Europe just over half of major companies have reported and roughly two thirds have beaten estimates, showing an average growth in earnings of 49% year on year. Despite the challenges of Covid, companies are mostly continuing to deliver good results. With economic growth expected to remain positive, this trend should continue over the rest of this year.
It is not that macro events are never significant for markets. There will be incidents in the future that will lead to large losses in equities; we just don’t claim to be able to predict what will cause them or when they will happen. Trying to guess when they will occur, rather than accepting them as an expected feature of long-term investing, will inevitably lead to worse outcomes.
We continue to monitor the situation as we did during the early stages of Covid but we think about the event in the context of the long-term investment strategy. As ever, our underlying thought is always to spend time in the market and not to try and pick and choose the best moments to be invested.