How to invest and secure funds during armed conflicts

For a week now, the world has been circulating dramatic news from Ukraine, which was attacked by Russian troops. The specter of this attack has long hung over the financial markets, but the scale of the attack was not taken into account. Of course, this had to have an impact on the condition of the financial markets: we immediately experienced sudden sell-offs of various asset classes for fear of risk and an increasingly realistic scenario of an escalation of the conflict. Ukraine has earned the nickname of Europe's "granary" as an economy that has a large share of agriculture and is vitally important. Concerns about price increases are not unfounded, especially as we are already struggling with increased inflation. In addition, there is also the factor of Russia as an aggressor - this country is responsible for the enormous process of supplying energy resources, including to Europe, which is also a great economic and political problem. Additionally, there are concerns whether the war will spread to other geographic areas, there is a challenge of population migration and many other aspects that may affect the development of national economies and global GDP. All this influences the investment decisions of both retail clients and large investment firms regarding positioning in relevant geographic regions and different asset classes.

Usually in the case of the so-called the most risky assets lose the global risk-off, but there is also a very important geographic aspect. To illustrate the situation, the main index of the Polish stock exchange, i.e. WIG20, lost -10,87% during one trading session, German DAX  -3,96% and the American S&P 500 index gained + 1,50%. Obviously, the Russian and Ukrainian assets fell the most, and the sell-offs of individual ones reached declines of several dozen percent, e.g. index of the Russian RTS stock exchange he lost almost 50% during the session.

About the Author

Tomasz Krajewski - WealthSeed operations and billing manager, securities broker (license number 2972) with over 15 years of experience in the investment industry.

What to invest in during the war

In times of war, financial markets are accompanied by increased risk aversion, which may reward certain classes of assets. Recently, there has been a belief that cryptocurrencies are an asset for safe times and the new gold. Is it really so? Not necessarily. While it is a "safe" asset, that is gold on the day the conflict broke out, the largest cryptocurrencies, such as Bitcointhey lost a lot. But in the meantime, the Russians, cut off from international banking, for fear of a depreciation of the domestic currency, probably contributed to "normalizing the situation" and triggered an increase in the crypto market.

What besides gold? Another noble metal, ie silver, and it seems that these asset classes should usually appreciate in turbulent wartime times. 

During the Russian attack on Ukraine, prices in the markets also increased sharply oil, gas or agricultural products like wheat or maizehowever, the increase in these assets is a direct result of the subjects of the conflict. Energy resources are related to Russia, and a possible reduction in the supply of these resources would affect their prices on the market, which was the main factor behind their growth on the stock exchanges. A similar situation is related to wheat type products, of which Ukraine is a large producer. The conclusion is that the behavior of individual assets is strongly linked to the areas of the conflict and its participants. 

So, can we find other investment assets or assets that will give us security? It seems that you should also consider buying strong currencies directly, such as the dollar, Swiss franc or yen. These currencies tend to strengthen in cycles when there is an increased risk in the market, hence it appears that currencies should remain strong in difficult times.

In wars, individual economic sectors also get richer, for example arms industrySo it is obvious that at such times weighing in on stocks of defense companies or related to the industry. You can invest in this industry by directly investing in shares of individual companies, such as Lockheed Martin, or indirectly by purchasing instruments such as ETF investing in the defense industry.

Is the war associated with a prolonged bear market?

Nathan Rothschild, a member of the bankers' family who made a great fortune, incl. during the Battle of Waterloo, he once said:

"Time to buy is when there's blood on the streets."

This saying refers both directly to the war and to the extremely pessimistic emotions accompanying investors, which may be the result of many factors. Of course, it is not easy to sense the moment when we are dealing with extreme pessimism in the markets. That's why it's so hard to invest in difficult times, but if we wanted to trace the behavior of the markets historically during the 'invasion', we could learn some interesting lessons. Usually these periods were an opportunity to acquire discounted shares. One of the social media has recently seen popular graphics depicting the times of invasions or other arms crises, during which there was a sudden collapse, but also later an increase in share prices. So this time, although difficult for people directly related to the conflict, can also be an investment opportunity.