It’s shocking but true.
Last Thursday, Russia started its “special military operation” by attacking its neighbour Ukraine.
The toll from just the first day alone has been chilling — 137 people were killed, 316 injured, and more than 100,000 displaced from their homes by the escalating violence.
Unsurprisingly, stock markets reacted negatively to this development.
The Straits Times Index (SGX: ^STI) crashed by 3.45% in a single day, led by a 4.8% fall in the share price of Singapore’s largest bank, DBS Group (SGX: D05).
Meanwhile, the pan-European Stoxx 600 index fell more than 3% to a 2022-low, while the German stock market dropped 4% on the news.
As pessimism abounds, how should investors react?
A look back in history
As alarming as news of the war is, there have been many past incidents that showcase the effect of war on stock markets.
It’s insightful to take a step back and study how markets reacted to similar outbreaks in the past.
World War I began in 1914 and ended in late-1918.
In the first six months after the war broke out, the Dow Jones Industrial Average (DJIA) fell more than 30%.
However, throughout the war, the DJIA was up more than 43% in total..
World War II saw a similar unexpected outcome.
From the beginning of the war in 1939 until its end in late-1945, the DJIA was up around 50%.
You may think that these effects seem counterintuitive, but the reality is that markets tend to shrug off the effects of war over time.
Are your stocks affected?
The next thing to check is whether the stocks you own are directly affected by the Russian-Ukraine war.
Western nations have reacted with outrage, with many of them imposing sanctions on Russia for its flagrant disregard for peace and international law.
Last Friday, Australia imposed more sanctions that target Russian elite citizens and lawmakers.
The US has also unveiled harsh new sanctions including export blocks on technology and restrictions on Russian banks.
The Russian Rouble has also depreciated sharply against the US dollar, trading at around 85 to the dollar compared to 74.5 a year ago.
Stocks that have direct exposure to the Russian and Ukrainian economies would suffer direct adverse effects.
One example is Food Empire Holdings Limited (SGX: F03), where more than half of its fiscal 2021 revenue came from Russia, Ukraine, Khazakstan and other Commonwealth markets.
Another is Don Agro International Ltd (SGX: GRQ), an agricultural company operating in the Rostov region in Russia.
These companies will, no doubt, see their revenue and earnings crimped by this war.
But if you own a stock with principally domestic exposure, such as Frasers Centrepoint Trust (SGX: J69U) or Sheng Siong Group Ltd (SGX: OV8), then you have nothing to worry about.
Supply chains could be disrupted in the near term due to the effects of the war, but these should sort themselves out over time.
Take advantage of fear and panic
With ongoing pessimism surrounding many businesses, it could be an opportune time to think of deploying some capital into strong, well-run businesses.
Fear and panic can cause share prices to plunge in the short term.
As a Smart Investor, you can then go shopping for sturdy companies to include in your portfolio.
Blue-chip companies such as Singapore Technologies Engineering Ltd (SGX: S63) and Keppel Corporation Limited (SGX: BN4) continue to report strong earnings and good prospects.
Companies such as vehicle inspection business VICOM Limited (SGX: WJP) and electronics test solutions specialist AEM Holdings Ltd (SGX: AWX) continue to pay out attractive dividends.
And in the US, businesses such as Nike (NYSE: NKE), Starbucks (NASDAQ: SBUX) and Shopify (NYSE: SHOP) are still reporting healthy year on year growth.
By increasing your stake in businesses that enjoy tailwinds of growth, as well as those that payout steady, dependable dividends, you can better position your portfolio for long-term success.
Get Smart: An attractive buying opportunity
The evidence is clear.
War is a regrettable event that results in the loss of many lives and untold suffering.
But stock markets routinely shrug off such events and continue to climb higher after the initial shock.
You will be doing yourself a favour by ignoring the bad news and putting your money to work during this crisis.
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Disclaimer: Royston Yang owns shares of DBS Group, Nike, Starbucks and VICOM Limited.
