As investors worry about Russia’s war on Ukraine, we’re unpacking how geopolitical turmoil can affect different assets
Just as the pandemic was waning... Russia invaded a sovereign nation, launching a war that’s plunged Europe into one of its darkest moments since WWII. After Russia began invading neighboring Ukraine, Western leaders have been piling on harsher sanctions to punish Russian President Putin.
The crisis is rattling the world... and markets. The global economy is so interconnected that turmoil in one area can shake the entire financial system. Stocks have been falling all year as investors stress over inflation and coming interest-rate hikes. The conflict is weighing on what’s already hurting markets. How different markets have been impacted:
- Stocks: US stocks dropped immediately after Russia's invasion on Thursday, but rebounded for the week on expectations that the Fed could go easier on rate hikes (because: global turmoil). Few US companies have operations in Russia or Ukraine, so they’re more shielded. Meanwhile, Russian stocks have lost half their value.
- Bonds: US Treasury bonds spiked as investors sold more volatile assets like stocks and moved into “safe haven” investments like gov’t debt, which the US has always repaid.
- Commodities: Oil and wheat prices soared on concerns of reduced supply from Russia — the world's largest exporter of wheat, and a top three exporter of oil and natural gas. Meanwhile, gold prices are rising as investors seek more stability.
- Paper currency: The USD is appreciating as investors seek security in the world’s reserve currency, which has a stable rep, while Russia’s currency has tanked.
- Crypto: Some believe Bitcoin can act like digital gold — a “safe haven” decentralized currency to retreat to during conflicts. But BTC is down 30% over the past three months.
In uncertain times, investors crave security… That’s why during times of political turmoil, some investors retreat into "safe haven” assets like T-bonds, gold, cash, and even "defensive stocks,” which tend to be less affected by volatility (think: utilities and consumer staples). Diversifying across investment types can help hedge risk, but doesn’t mean losses won’t occur. No one can predict what’ll happen, but historically the US market has bounced back from geopolitical conflicts over time.