At the early stages of a foreign military conflict, the markets will experience high volatility, which can create opportunity for investments. With the increasing tension between the world and the actions of North Korea and Russia, now is a good time to consider the potential impacts these conflicts could have on your portfolio.
The First Response
Depending on how sudden and large the war is, the first market reaction could be hoarding on a global or individual scale. In the near-term, this would increase prices overall due to supply rapidly drying up and demand dramatically increasing. No matter where the conflict takes place, a knee-jerk reaction could send shockwaves through the global markets. For example, the civil wars along the Ivory Coast caused dramatic fluctuations in the price of cocoa, despite the conflicts isolation.
Classic Wartime Commodities
Gold and crude oil feel the sting of conflict most often, as crude oil is needed for energy and gold is regarded as a safe haven for investors. War also disrupts trade, and can cause a large spike in a country’s primary export (oil, cocoa, corn etc.), which would then impact the prices on a macro level. For example, should conflicts with Russia escalate, the price of crude could rapidly rise to levels not seen in years, due to interruptions in shipping lanes as well as a reduction in their contribution to the world’s crude supply.
Protect Your Investments
War has a history of devaluing money. Even though the initial reaction may be to stop spending cash during periods of heavy uncertainty, holding onto money during wartime could be a loss, unless it is invested. The potential for severe market reactions and price increases create a unique environment for investing. As seen in previous periods of economic instability, properly managed futures can still produce gains in uncertain times. Over time, the markets have a history of climbing after the first response to a conflict.
During wartime, commodity prices will typically increase. The question of which will rely on many factors, such as who is involved and where the conflict is located. Regardless of the extraneous factors, the worst thing to do is to wait to invest during times of conflict. Explore ways to diversify your portfolio by including managed futures to significantly limit risk. Working with a professional to design an investment strategy can increase the overall health of your investments, even during dire times.