Just when we thought that we had overcome one crisis than another rears an ugly head. This time it is not an invisible deadly pathogen but the possibility of armed conflict on the borders of Ukraine and Russia.
The threat, which seemed academic only a few weeks ago, is looking more real by the day. According to the BBC, more than a dozen countries, which include the US, the UK and Germany, have told their nationals to leave. The US has warned that Russia could invade its neighbour at any moment.
In times of geopolitical tensions, safe havens tend to do well, and risk assets could fare badly. It is not entirely surprising, therefore, that some investors have piled into bonds. It has brought down the yield on 10-year Treasuries from 2.04% to 1.94%. It seems that a hike in US interest rates in March, which was a nailed-on certainty, could now be delayed.
The Japanese currency is also seen as a safe place to park cash in times of turbulence. The yen has moved up against a broad basket of currencies that include the US dollar, the euro, the Australian dollar, the yuan, and even the Swiss Franc.
Meanwhile, gold climbed to its highest level since November last year, and Bitcoin has continued its slide from a recent high of US$67,000 to US$44,610. It seems that vague hopes that the cryptocurrency could be a proxy for gold is starting to sound a little hollow.
Elsewhere, crude prices climbed above US$92 a barrel, which would be the highest in seven years. Beyond crude, a disruption of natural gas to Western Europe could send energy prices around the world soaring.
Given what could happen in coming days, investing in risk assets could take a back seat. Sure, markets could be volatile. Sure, it could be a nervy time for investors. Sure, our portfolios could be mired in a sea of red. But panic-selling is never a good idea.
Instead, it could be wise to heed a piece of advice that has been attributed to London financier, Nathan Rothschild: “Buy on the sound of cannons, sell on the sound of trumpets”. As a long-term income investor, I wholly endorse the first part of his sagely advice. But I think I will ignore the second part.
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