According to research by Allianz Global Investors, “Buy on the sound of cannons” is an old investment adage that isn’t supported by its research into 13 geopolitical crises. Stocks have sometimes (but notalways) done somewhat better after the onset of global crises, and “safe” assets have sold off at times, but noncrisis-related factors were the bigger drivers of performance, the research points out.
“For today’s investors, inflation should remain a key concern: rising oil prices are inflationary, and central banks want to keep inflation in check,” the report says. “We remain cautious on equities for now: the markets have enjoyed years of solid performance, and the Ukraine crisis may spur additional selloffs over the coming weeks,” it adds.
Ominously, Allianz GI says oil prices are another story. There has been a significant rise in energy prices, with both West Texas Intermediate (WTI) and Brent crude trading above US$100 per barrel – twice as high as two years ago. This is likely to leave its mark on economic growth. In the past, a doubling of the oil price within two years has repeatedly led to a recession.
Our own Straits Times Index has ‘failed’, as prices fell back to 3,225, below the breakout level of 3,240, invalidating the upside of 4,000. In falling below 3,240, the STI has also fallen below its 50-day moving average at 3,277, and the 100-day moving average at 3,226. Quarterly momentum which had turned down in the last week of Feb continues to fall. Watch for some support - initially at 3,175 and then at 3,100.
