Ukraine crisis will hurt local stocks, but likely not for long

The war in Ukraine is likely to bring more volatility to the stock market and jack up global oil prices in the near term, but if history is any guide, the impact of this latest geopolitical crisis on equities is not likely to be protracted, leading online stock brokerage COL Financial said.

In a March 1 research note written by the team of chief equity strategist April Lynn Tan and head of research Charles William Ang, COL advised investors who have cash to take advantage of any sell-off caused by the conflict to buy stocks at cheaper prices.

Given the prevailing uncertainty on how the situation would be resolved, alongside concerns on the impact of commodity prices, COL said this crisis would weigh down the market.

As Russia accounts for around 10 percent of global oil production, while Russia and Ukraine combined account for around 14 percent of global wheat production, the crisis is seen exerting more pressure on oil and wheat prices.

But while stock prices could go down in the near term, COL said that based on the performance of the US stock market during past incidents of heightened geo-political tensions, the declines would be “most likely short-lived.”

“The same is true for oil. Although the price of oil could go up because of the conflict, the increase would probably not be sustained,” the research said.

Losses regained

COL noted that during the Gulf War—which began in August 2, 1990 and ended in February of 1991—the Standard and Poor’s (S&P) 500 fell by a total of 19.9 percent in a span of three months, while oil prices more than doubled during the same period.

But six months after Iraq first invaded Kuwait, COL added that the S&P 500 had regained most of its losses and was down by only 2.4 percent from its peak. Twelve months later, the index was already 10.2 percent above its pre-Gulf War peak.

Meanwhile, the price of oil had gone down by 7.7 percent six months and 12 months after Iraq’s invasion of Kuwait, COL noted.

During the Iraq War, COL noted that the S&P 500 had peaked two months before the conflict began, then started falling although the war had not yet started, most likely due to growing indications that a war would be imminent. From its January peak to its March low, the S&P 500 had slid by a total of 14.1 percent.

“However, because the war was already priced in, the stock market didn’t go down anymore when the war officially began. In fact, six months after March, the S&P 500 was already up by 18.6 percent while it was already higher by 27 percent 12 months after,” the research said.