In the face of an increasingly chaotic geopolitical environment, investors should avoid panic selling of stocks and focus on the market fundamentals, according to JPMorgan Chase & Co.’s head of global equity strategy, Mislav Matejka.
“If one is selling on the back of the latest geopolitical developments now, the risk is of getting whipsawed,” Matejka and his team wrote in a note to clients Monday. “Historically, vast majority of military conflicts, especially if localized, did not tend to hurt investor confidence for too long, and would end up as buying opportunities.”
The appeal for calm comes as a fresh wave of Western sanctions against Russia and increasingly aggressive rhetoric from president Vladimir Putin, who ordered his nuclear forces to be on alert over the weekend, exacerbated this year’s rout in equity markets on both sides of the Atlantic.
Banking stocks were the biggest decliners in Europe on Monday, sinking to the lowest in two months, after the U.S. and EU ramped up their measures against Russia by blocking some of the nation's banks from the international SWIFT transaction messaging system and moving to target the central bank’s foreign exchange reserves.
“We acknowledge that our longs in Europe and in banks are not likely to perform as long as this crisis dominates the headlines,” JPMorgan’s strategists said. Still, on anything longer than a one-month horizon, banks and Europe should continue to be seen as fundamental overweights, the strategists added, “especially if commodity flows are not cut from Russia.”
UBS Global Wealth Management echoed the sentiment on Monday.
“We caution against hasty shifts in positioning based on events,” strategists led by Mark Haefele wrote.
“We think it is important that investors maintain a calm stance and keep a long-term perspective,” they said, advising investors to diversify across regions, sectors, and asset classes, use commodities as a geopolitical hedge, and position for U.S. dollar strength.
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