Traders and investors are feeling trapped in a Catch-22 situation with the market constantly swaying sideways. The rising tensions between Russia and Ukraine have taken a toll on the financial markets. Global stocks are at a three-week low while the price of oil has shot up with news of mounting tensions between Russia and Ukraine.
An alleged border incident to the east of Ukraine has triggered fears of unwanted clashes between the two countries. Adding to this, the recent news of Russian President Vladimir Putin ordering the deployment of troops to two breakaway regions in eastern Ukraine and the US and EU denouncing Putin’s act as a violation of international law have made the market jittery.
Many investors lost their earlier gains made on the news shared of how both Biden and Putin had agreed in principle to hold talks on the Ukraine crisis. However, with no clear solution in this direction, the market is on a high alert with many traders diluting their shares fearing further fall. With news speculating further escalation in this risk, many have asked if investors must sell stocks to avert further losses.
Before we delve deep into how we must position ourselves in the market, it would not hurt to reminisce the major geopolitical situations including the recent Covid-pandemic in 2020 that wiped off major market wealth in the past. Experienced investors have always relied on the market’s resilience, a quality that manifests itself regularly despite major falls.
Bulls have always overpowered the bears as stocks bounced back to a higher level within three months after any major geopolitical event. In more than 60 percent of the events that shook the world market and threatened to diminish it forever, stock prices had risen after only a month, thus, stacking the odds in favor of higher stock prices with passing time after the event.
Moreover, some stocks that react sharply to any crisis tend to bounce back higher as time passes after the event. Getting out of the market early out of fear and apprehension translates to a loss of opportunity profits in many cases. The short-term risk with stocks falling by at least 20-30 percent is upended as markets reeling under a short-term spell deflect to an upward trend with companies posting their earnings in their quarterly results. History rarely repeats itself exactly, though the following figures do offer us hopes of market recovery.
Stock prices reflect companies’ earnings that may be subdued under the brunt of temporary market forces, but do not decline completely despite disruptions in supply chain management that lead to higher input costs. Most companies listed in the Nifty 50 Index have reported higher quarter results with many also surpassing previous earnings and sales estimates. With the value of the rupee falling against the dollar, export companies are expected to exceed investors’ expectations in the upcoming quarters, thus, propelling both Nifty and Sensex upward.
Buy or sell?
Veteran investors are of the view that this turbulence will not last for long. Urging their peers to take their positions with a long-term perspective, they have shared how the current market conditions mandate them to wait and watch than lose their sanity in day trading.
Sometimes, it pays to be a mere spectator than be an active trader in the market. The correction was long due. The Russia-Ukraine effect only jolted the market beyond our anticipation. With this long-awaited healthy correction, those who invest and do not trade daily can use their leftover cash to buy fundamentally good stocks at much lower prices. Averaging down in stocks yields profits when they make a turnaround in a bullish market.
American author Morgan Housel in his book “The Psychology of Money” had written, “All past declines look like an opportunity; all future declines look like a risk,” stands the test of time. The drama of the Russia-Ukraine crisis is just another fleeting geopolitical event that has more rumors to its credit than any major political outcome. Its spillover effect on the share market must be viewed as another ephemeral incident that has unwarrantedly garnered our attention.