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12 May 2022

Navigating Conflict

This topic was a real headscratcher at Redmayne Bentley HQ. We don’t want to become embroiled in current affairs but sometimes matters, such as a war, give us little choice but to address the potential consequences. Our aim in normal times is to provide you with a glimpse into long-term themes and trends, while giving you a point of access to invest. That is not to say we aren’t mindful of current affairs, but there is the risk of whatever we say becoming out of date when the situation is so fluid and fast moving. Furthermore, our output is often designed to highlight opportunities, and to be opportune at a time of deadly conflict is little short of crass. Without being opportunist, there are certainly assets to protect your portfolio in times of market stress (See: Chinese Government Bonds: An Alternative Safe Haven?)

Nonetheless, the tragedy unfolding in Ukraine and its impact on financial markets is too big to ignore, as such we will look to navigate the noise and focus on the impact to our investment thesis. Ultimately, we view investing through the lens of a five year-plus strategy, so be mindful that our thoughts will reflect that. If nothing else, we feel there are enough headlines out there to give you a short-term picture of the effects this current war is having on energy prices, inflation, and recessionary concerns, but what about beyond that (See: Has Russia Inadvertently Sped Up the Shift to Renewables?)

As a starting point, we wanted to address the related portfolio falls and their endurance on portfolios. It is perhaps the biggest concern to investors and our best view is to assess the precedents that have led to this point. Unsurprisingly to us, the data demonstrates an extreme resilience in markets when faced with such a crisis (See: Conflicts and Markets). Yes, uncertainty does ignite volatility and sharp falls in the immediate threat of conflict, but over time average returns have found their way back to trend.
 
But this time it’s different, right? In many ways that phrase is a fair challenge. Not least, we are just beginning to emerge from a global pandemic and an unprecedented and sustained level of monetary and fiscal stimuli from governments to keep the global economy afloat. These factors, coupled with a bottleneck of supply chain shortages, have created a highly inflationary environment (even before the conflict began). This does create a real conundrum for central banks; they are torn with the choice of taming inflation by raising interest rates, but also run the risk collapsing economic growth in the process (See: Monetary Policy: The Imperfect Storm). Perhaps the war gives more credence for them to let inflation run a little hotter in the meantime (holding off on aggressive rate hikes) to save the economy. The theory tells us this is ultimately positive for markets.
 
On a final note, the events in Ukraine are deeply concerning and our continued thoughts are with those impacted by this conflict, some of whom are our clients and our employees. From an investment point of view, we stand firmly by our philosophy of time in the market, rather than timing the market, which has served investors extremely well over the long term.

This article was taken from the March 2022 issue of Market Insight. To subscribe to our investment publications, please visit www.redmayne.co.uk/publications.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
 
Navigating Conflict
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