War’s impact on markets – decent returns

WAR and conflicts – whether local, regional or global – always arouse tension and anxiety in us as investors. First, there was the Ukraine war; then geopolitical tensions between the US and China; Afghanistan; and now the Israel-Palestinian conflict. Markets have weathered more than their fair share of geopolitical events in the past few years. Investors have become anxious, and volatility has surged alongside the rise in uncertainty.

The science of wealth is about using empirical evidence and data to learn and understand how financial markets work. An important part of that is to look to the history of financial markets to guide and teach us about how markets react under different circumstances. We all know that while history may not repeat itself, it certainly rhymes.

This evidence-based approach allows us to take into account the unique context of any event, and compare it with other similar experiences to see how that may affect financial markets. It is intuitive to think that wars and conflicts will have an outsized negative impact on financial markets. Normally, these events are seen as a shock to the system. However, the way markets react may not align with most expectations.