Why You Should Change Your Attitude Towards The Stock Market During Wars

We thought 2022 would finally be a better year than 2020 and 2021, but guess what we are now close to a third world war. Russia has declared war on Ukraine and innocent people are dying. My thoughts are with the Ukrainian people that are struggling right now. But also with the Russian people that have nothing to do with this crazy war and are getting sanctioned for their leader foul play. Unfortunately with a financial viewpoint you can say: the time to buy is when there is blood on the streets. Time and time again, history showcased that times of war were one of the best times to buy stocks.

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Last week, I attended a stock market debate, which had as speakers, the director of Blackrock Belgium Stephan Desplancke and Chief Strategy Officer of BNP Paribas Fortis Philipppe Gijsels. It is always nice to hear from veteran analysts, that can confirm you are doing the right things with your portfolio, for sure when the market is as volatile as now.

Overall they agreed that holding cash is not a smart idea. The longer you hold cash the lower your buying power will get. Every year you will lose money by holding cash. Things are getting more expensive, but your savings account is staying flat.

European inflation will continue to rise due to the current war. Although the war might cause lower demand in consumer goods as people try to save money for the worst. That is why central banks might take a more muted action towards interest rate hikes. Next to that European countries like the high inflation and low interest rates this way they can get rid of the high government debt, so they want to keep interest rates low for a long as possible.

In America, people are also still debating about a possible slowdown in the rise of interest rates due to the ongoing war in Ukraine. Inflation is not transitory anymore and defending your portfolio is important. The analysts saw opportunities in energy, commodities and financials. Although you have to be careful with commodities since they can U-turn really quickly. The BNP strategy officer also said: Since tech has seen a big correction you should definitely keep a good portion of it in your portfolio. Our society wants innovation and this will not be different in the coming years.

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Last week at Blackrock they got more bullish on stocks for a couple of reasons. If interest rates remain low or we see slower rate hikes, people and companies will stay away from bonds and cash in this high inflationary environment. The market also priced in the hawkish fed, which might now be more muted with the ongoing war. The stock and real estate bull market can continue to rise as there is no better way out for cash. Since real estate is already very expensive, stocks can see the biggest inflows. So Blackrock is positive about the stock market and they have increased their stock or equity weighting. The recovery of the market might be a bit slower.

Blackrock director also highlights the importance of green energy, short term it might bring higher costs and inflation of certain goods. But for the long term it is a play you can’t miss in your portfolio. They favor developed markets as they are better positioned in the green transition.

At the moment you should not be too picky at what price targets you want to buy stocks. On average the market bottoms out after 22 days of a geopolitical event happening. So averaging down next weeks could be a very good strategy.

war times sp500

If you don’t like small caps, you can even look at some bigger names that are down to multi year lows. Meta is at the same level it was in 2018. This company is highly profitable and a cash cow. The same for Paypal, down to 2018 levels this can be an opportunity if you have been waiting to buy Paypal at a lower pe multiple. Also don’t forget these companies will likely buyback their own cheap shares at the moment, which will create more shareholder value. Another name that I like really like is Alphabet. A pe of 22 seems really reasonable for this quality company.

For now I’m staying away from European stocks as I fear that they have more risk of stagnation which means high inflation and slower growth.

Overall I’m now investing in quality companies that have high cash flow and a strong balance sheet. For now you should avoid investing in companies that lose money, since interest rates will go up in the next months.

What are your plans? Let me know in the comments!

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