Client Update - 9th February 2024

First and foremost, myself and the whole team would like to extend our heartfelt best wishes and support to His Majesty the King and the Royal family this week, following the news of his recent cancer diagnosis. Our thoughts and prayers are with him as he steps away from public engagements for treatment. We wish him a swift recovery and eagerly await his return to full public duty once he has fully recuperated.

It seems geopolitical tension currently weighs heavily on people's consciousness at the moment. I have had a number of conversations on such matters over the last few weeks and months. This is quite understandable, as the world watches the ongoing war in Ukraine, conflict in the middle east and ongoing tensions between the US and China. One cannot help feeling torn when considering such matters, but as a fiduciary of your capital we must put aside our feelings on the human tragedy and rationally focus on the implications on your financial future.

Uncertainty weighs on financial markets and businesses alike as decision-makers hold off from making major commitments and investors also try to assess the economic or political impact. But how concerned should we really be with these risks and how they affect our investments?

You may recall our email from a few weeks ago discussing the concept of "buy the rumour, sell the fact." This notion extends to geopolitical events, where research suggest that financial markets are often more influenced by perceived threats than by actual occurrences and their long-term outcomes.

A study conducted by analysts at Reuters, examining 29 different geopolitical crises starting with WWII, revealed that on average, stocks were higher three months after a geopolitical shock. Additionally, in 66% of cases, stocks increased in value just one month after the initial shock. The study found that markets sometimes experience sharp upticks following a crisis, indicating that exiting the market might lead to missed opportunities. So, while investors should be prepared for additional volatility, history does seem to suggest that stock declines associated with geopolitical fears are generally a temporary setback and an opportunity to buy at discounted prices. Our worst fears lie in anticipation indeed.

Drawing conclusions from this analysis, it becomes evident that while geopolitical tensions can momentarily disturb investment returns, such impacts are often fleeting. A dynamic investment strategy should perform better than a static portfolio, underscoring the merit of adaptability in investment decisions.

The coming week will see geopolitical news flow move into overdrive, as we see the first interview by a western journalist with Russian President Vladimir Putin since the Ukraine invasion began. Vladimir Putin will be interviewed by Tucker Carlson no less.

Former Fox News host Tucker Carlson is a controversial character, known for embracing conspiracy theories and ultra conservative views. He is also extremely popular, with his Twitter/X videos receiving hundreds of millions of views. Carlson states that this interview aims to inform Americans, highlighting widespread public interest despite limited awareness of the conflict's realities. Mr Carlson acknowledges the American public's perspective, planning the interview with President Putin to inform them about the region's situation as in his words “most Americans are not informed … and they should be, they’re paying for it”.

This comes amidst growing US debate over continued funding for Ukraine's war effort, with a recent CNN poll showing 55% of Americans opposing additional funding from Congress. Partisan divisions have deepened, with Democrats and Republicans increasingly divided on the US role in Ukraine. This becomes even more significant as it is speculated that Tucker Carlson could be the potential Vice President running mate for Donald Trump in the coming US Election. My sense is this interview will have implications.

Our team is dedicated to staying alert and informed on any ongoing geopolitical risks, and it is good to see portfolios making a positive start to the year so far. Hopefully, this brings you some peace of mind. Do have a good weekend.