Geopolitical Tensions: Five Investment Actions To Take

With Russia invading Ukraine, global equity markets have gone into a tailspin. Last week witnessed some incredible see-saws in domestic as well as global stock prices, with the SENSEX crashing more than 2,700 points on Thursday before recouping some of its losses on Friday. Crypto markets too bore the brunt, as Gold broke out with sentiment turning risk-off. If you’re an investor, you could be getting nervous with all the noise around you. Take these five simple actions and your portfolio will be in good stead.

Long Term goals? Start accumulating equity

The past one year has seen the current PE of the NIFTY dropping from 40x to roughly 21x, which is a very respectable number. The domestic economy has performed well with earnings growth on an uptick, while the recent tensions have shaved off some of the froth that had built up when the NIFTY had crossed an astronomical 18,500 points last year. If your goals are long term, this would be a great time to start increasing your equity allocation in a staggered manner through SIP’s and STP’s. Strap on your seat belts and be patient though; markets are going to remain volatile for a while.

Avoid long term debt

The easy liquidity and accommodative stance that we’ve seen post 2020 may very well be nearing an end, with crude soaring past USD 100/bbl amidst supply concerns. If inflation starts to creep up, it’s almost a certainty that the RBI will at some stage start reversing it’s low rate stance and turn more hawkish. Even a 50-basis point hike could result in a 5 per cent negative impact on a long term debt fund with a modified duration of 10 years. Best to steer clear of them and choose arbitrage funds to park your low-risk moneys for now.

Make a strategic allocation to Gold

Geopolitical tensions have traditionally augured well for the yellow metal, and we have now seen international gold prices breaking past the USD 1900/ounce for the first time in close to 8 months. Whether or not it will sustain or continue to rally would depend upon how long the resolution takes and how long sentiment remains risk-off. Fed rate hikes may also cap the upside in the near term. However, it makes sense to not speculate but rather make a strategic allocation of approximately 10-15 per cent of your overall portfolio to gold right now.

Steer clear of crypto

The crypto market seems to be cooling off for the past several months now, with many questioning their long-term viability as well as value as an asset class. For the past couple of years, abundant liquidity and a risk-on sentiment have kept Crypto process afloat (although BTC is nowhere close to its heady 65K+ heights). If liquidity starts drying up and the mood continues to be pensive, there’s no saying how deep a cut the crypto markets may witness if investors start dumping them en-masse. 

Don’t panic – Geopolitical issues have a short-term impact

A final word – geopolitical tensions have rarely had a lasting impact on stock markets in recent years. We’ll likely see equities resuming their normal rhythm in a month or two, and the focus will shift to macros and earnings. So, do not panic and take any knee-jerk actions on your portfolio. Keep your head down and stay focused on your long-term goals. Remember, a notional loss only becomes a realised one after you’ve booked it!