Back to ‘safe-haven’ assets says Evergreen

The unfamiliar investor environment with post COVID-19 pandemic economic conditions of simultaneous inflation and market volatility suggest that the typical wartime market recovery expected with the Ukraine-Russia crisis may not occur, according to Evergreen Consultants.

Angela Ashton, Director and Founder, said traditional “safe-haven” assets such as cash, gold, long duration bonds and highly traded real assets like commodities will be considered for portfolios given the current outlook.

“If we are to be guided by history, markets often sell-off in the lead-up to an armed conflict due to heightened uncertainty, but typically recover once war has commenced,” she said.

“Current underlying economic conditions could mean that market outcomes are less satisfactory if the conflict cannot be contained, especially if central banks make a policy error.

“The best-case scenario is that any conflict and sanctions are short-lived and energy prices retreat to levels that do not add further impetus to rising consumer and producer prices. This will reduce the risk of a policy error and potential for an economic and market malaise.”

However, Ashton warned against pointing to historical situations as a “security blanket” to determine current market outcomes, as they could play out differently.

Ashton also said that an examination of share market behaviour in the last 100 years revealed uncertainty in the pre-war phase focused on what the superpower nation’s response was going to be (typically the U.S.) and how it would impact financial market liquidity.

“An ongoing high inflation environment would likely be negative for many asset classes,” she said.

“While this is not our base case, we will be watching for further evidence on likely inflation trajectories and exploring measures to insulate client portfolios from the new challenges this would bring.”