Today’s invasion of Ukraine by Russian forces has accelerated a broad fall in equity markets and weakened investor sentiment. The human cost of the Ukraine conflict could be stark and extensive, making tough sanctions from NATO allies, and other countries globally, inevitable. Markets are already beginning to price in the inflationary consequences of the renewed surge in energy prices, particularly within continental Europe.
The pickup in market volatility this year, has not however been driven exclusively by geopolitical risks. It was initially caused by near-term inflationary pressures, proving to be higher and longer lasting than many, including us, expected. Responding to this inflationary pressure, central banks, including the Bank of England and the US Federal Reserve have, in recent months suggested a willingness to raise interest rates and reduce stimulus, at a faster rate than previously predicted. This has unnerved markets, and increased concerns that it could threaten the longer-term economic growth picture more broadly.
We continue to believe, inflationary pressures will begin to fade as the year progresses, distortions caused by the pandemic begin to reduce and re-opening will gather pace more broadly. Whilst inflation may remain higher than prior to the pandemic, easing pressures should reduce the need for interest rates to rise as much, or as quickly as is currently being priced in.
Inevitably the recent sell off has impacted the value of portfolios, and the current situation may well cause further falls in the near term. We continue to believe however, that the medium term environment remains supportive and markets will recover, as we progress further through the year. Whilst always difficult, history demonstrates the value in staying invested during periods of market volatility.
As with the 2020 Covid Crash, periods like this can cause people to worry about their pension or investment but it is important to remember the following points:
Your portfolio will be invested in a diverse range of funds to reduce the risk during periods such as this
As ever, unless your circumstances have changed, it is best not to panic and sit tight – markets will recover.
Indeed, if you have surplus cash, it may be a good time to speak to your adviser about investing while prices are low.
If you have any questions, please do not hesitate to contact your adviser