- The pandemic, inflation and geo-political crisis make a potent brew
- Being discerning about shares is still vital, despite risks for expensive quality
Tragedy is unfurling in Ukraine and that unsurprisingly spilled into highly volatile stock markets this week. While we wouldn’t tout this disaster as a wonderful buying opportunity (that would be crass beyond belief and, frankly, could be erroneous and misleading), the fact is that investors will be worried about the impact such seismic events have on their portfolios and wonder how to position themselves.
Before Putin’s invasion, most focus had been on inflation and the interest rate hiking cycle embarked upon by the Federal Reserve and the Bank of England; and various degrees of quantitative tightening and monetary policy tightening around the world. This doesn’t favour expensive quality growth stocks as investors need companies to make bigger profits or become cheaper in order to still achieve a reasonable real (after inflation) rate of return. However, when there is a geopolitical crisis, some of those steady safe businesses seem more attractive again. While most people’s first reaction isn’t to try and profit from the horrors of war, the fact is that market gyrations do create openings to rebalance into quality defensive shares.