Wars Don’t Last. Markets Do.

Is a War a big spoiler for markets? Look at how they played out in recent times. First, it spooks oil prices if those going to war are oil producers. Then, it spikes gold prices as the fearful world rushes for cover. Global investment flows freeze as anxious investors keep watch for clarity to emerge. Then, as clarity emerges, the investor rush to return begins in equity. Investors hurry to put the war behind. This familiar tale has dominated markets during every significant war in recent years. Stock markets often overvalue geopolitical stability only to underrate it soon enough. So the streets have learnt to absorb such bad news swiftly. Often, war driven market volatility turns out to be a good time to enter markets or to raise one’s equity investment exposure. The Yemen strife is another in a string of shorter wars that get resolved swiftly. After all, countries don’t have the means to go into long, fiercely fought wars anymore. Swift truces are the order of the day and war is now more a posturing tactic than a long drawn out costly affair. Investing during such phases has to be counterintuitive.

Everyone finds his conviction. When one finds it really matters.

Time to learn slow cycling.

The question now is not if but when. We are talking of the Federal Reserve of America raising interest rates. While the Fed isn’t showing any hurry to raise rates, the slow paced approach will test the market’s patience. The markets will factor in an eventual rise in US interest rates. With interest rates set to rise in the USA, the global investment flows are set to see much greater churn. Monies flowing into emerging markets are certain to slow. The dollar’s rising strength will weigh heavily on the minds of US based investors. They may prefer their own markets over emerging markets like India. This is likely to cool things down in the global emerging markets. The froth in valuations is certain to settle down. Valuations will be overwhelmingly anchored to earnings than to sentiment. A phase of slow and measured investment action awaits.

There is no such thing called an efficient market. We only have efficient investors

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