The tragedy on the Ukrainian front is testing the nerves of small investors. The stock market crashes are certainly negligible concerns compared to the drama that the populations involved in the war between Russia and Ukraine are experiencing in these hours. In the wake of bad news in recent days, the stock exchanges have been overwhelmed by sales, marking huge declines and small wallets are now afraid of losing their savings. Last week, the lists of the main European markets fell to the lows of the last 12 months. Milan lost 13% while stocks very present in savers’ portfolios such as Generali, Eni, Intesa Sanpaolo and Unicredit fell between 7 and 20%. Instead, gold, gold mining stocks, the US dollar and the Swiss franc and, to a lesser extent, the Japanese yen and the British pound moved in the opposite direction. But what is there to know and how to protect investments in this difficult phase?
Attention to emotionality
The first reflection that wealth management experts make is not to let oneself go to emotionality, that is to say not to sell because dominated by fear. «This type of decision must be made rationally – explains Gianluca Verzelli, strategist of Banca Aletti -. Otherwise the risk is to worsen the situation ». And in these days the comparisons with other difficult moments in history are multiplying. An example? After Pearl Harbor, the markets collapsed but recovered in just 12 months. A similar trend was recorded after all the great geopolitical shocks of the last decades.
The second reflection of the experts is that it is closely linked to the first concerns the investment time horizon. In practice, the advice is to close your eyes on the instant and look to a long period of 10-15 years. «Today more than ever it is important to focus on the general picture in the medium and long term – recommends Roberto Rossignoli, Portfolio Manager Moneyfarm -. History teaches that markets tend to over-react to crises ».
The rule of diversification
More generally, beyond the difficult contingent phase, the advice of the experts is to diversify your investments. How? For example by focusing on a global basket that contains the corporate shares of the largest companies in the world. This is the classic case of the MSCI World index on which many ETFs, the low-cost listed indices, are built. Last week, this global index lost 2.8%, a modest decline compared to what happened in Europe.
“In this phase, a certain duration, gold and safe-haven currencies can provide a buffer to risky assets – say the Amundi experts -. Equities, which have ample liquidity, will be the first risk reduction target for the markets and credit is likely to follow. Overall, it will be essential to maintain liquidity as a “buffer” and a high degree of attention to the liquidity of assets will be crucial “.
The awakening of gold
Gold is the first thought of investors in times of great difficulty. The fear of rising inflation, driven by the rise in raw materials, is also driving the precious metal up at this stage. Gold rose nearly five percentage points to $ 1,973 last week, while it has already gained $ 130 since the start of the year. “As safe haven assets, we believe gold and gold stocks will be the main segments earning the most from a Russian invasion of Ukraine,” says Joe Foster, Portfolio Manager, Gold Strategy at VanEck. The sanctions promised by the United States to Russia could raise energy prices, further increasing inflationary pressures ». And therefore the price of gold and of the companies that extract the yellow metal.
The dividend strategy
Dividends are considered a parachute that cushion falls on the stock market. The Italian list has historically offered very interesting dividends. Stocks such as Generali, Eni, Enel, A2A as well as the large banks are among the favorites of those who choose this type of strategy because they also pay 5%. This path can be followed with the many ETFs or mutual funds that offer the investor a basket of high dividend shares to invest in.
Raw materials
The context linked to the crisis in Ukraine is pushing up raw materials such as oil, natural gas, aluminum but also wheat and soy. These are positions that can help savers protect themselves from both stock market volatility and inflation. In addition to providing diversification, these tools can represent a shield against geopolitical crises and inflation. “Furthermore, in the medium-long term, this exhibition could offer interesting returns, driven by shortages caused by growing pressures for a green economy and by more extreme weather conditions,” says Roberto Rossignoli. However, these are choices that must be made with caution. The tools to bet on this type of asset must be carefully evaluated and it is necessary to know how to use them.
The BTPs held up
Government bonds are often an important share in the portfolios of Italian savers who historically like to bet on BTPs. It must be said that Italy’s debt has managed to keep up with the volatility of recent days. Some issues, those with a longer duration and those linked to Italian inflation, have even gained ground on the price side. «Our opinion on government bonds is that, despite the expected returns are still low, they too represent a unique diversification tool, as shown by the positive return during the Russian-Ukrainian crisis – replies Roberto Rossignoli -. That said, given the low levels of nominal and real rates, we continue to favor riskier alternatives and instruments such as high yield and hard currency government bonds from emerging markets ».
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