Just when it seemed pundits had started talking again about the continuation of the current long bull run, geopolitical risk has re-emerged as an investment issue.
First we had the Russian involvement in Ukraine, along with the shooting down of the Malaysian flight MH17, resulting in sanctions against Russia and increasing tensions between Russia, the US and EU.
Then there’s the Iraq situation, with US air strikes in northern Iraq against the Islamist militants. On top of this, the Gaza strip conflict and problems in Libya have helped to exacerbate worldwide tensions and have led to some investors thinking about reverting to more risk-averse strategies.
The upshot of all this is that earlier this month, the FTSE100 dropped to its lowest level since April. Across the Eurozone, things are looking tough too, as recovery has stalled in most countries, with Italy going back into recession and even Germany now getting close to recession.
So what can investors make of all this? The short answer would seem to be don’t panic unduly. Volatility has returned, but it is still historically low – and the FTSE100 made small gains today. Long term forecasts are still looking good and the profitability of strong companies is unlikely to be affected that much, if at all.
Two issues that could have an impact, however, are the possible rise in oil and gas prices, plus earlier or sharper than expected increases in interest rates. The latter is obviously more controllable.
Obviously, lower market prices represent an opportunity for investors to buy more cheaply, getting the benefit when the market bounces back – and of course, the benefits of regular saving come to the fore once again, as volatility allows you to buy more shares or units for your money in your selected investments.