The FTSE 100 index has plunged 3.3% following the tragic news of Putin’s invasion of Ukraine. Stock markets have been jittery about the situation for weeks, and now Putin’s intentions are clear. Ukraine’s foreign minister has said that Russia has launched a “full-scale war” on the Eastern border of Europe.
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How has it affected the FTSE 100?
The FTSE 100 index, which contains the UK’s 100 biggest companies, is down over 3% already. Shares in mining companies Evraz and Polymetal are down 26% and 37%, respectively. They both have operations in Russia and could be directly affected by the conflict.
Shares in other companies are less severely affected as investors wait to see how the situation develops.
What’s happened to world stock markets?
It’s not just the FTSE 100 that’s affected by the Russian conflict. Stock markets around the world are feeling the shock, with the German DAX down 5.0% and the Paris-based CAC also down 4.7%.
The US markets have yet to open at the time of writing, but the prospects don’t look good. It follows a dismal week, where the S&P has already dropped over 5% in the last five days.
How have investors reacted?
The FTSE 100 sell-off reflects a common pattern when stock prices drop. Investors often flee to safety and pile into safer investments like gold and bonds. That pattern seems to be repeating itself, with gold prices up 6% this week.
Is this the end of the bull market?
The stock market is notoriously hard to predict. And market forecasts can often prove embarrassingly wrong.
For a stock market dip to turn into a full-blown bear market, FTSE 100 prices would need to plunge more than 20% and stay depressed for more than two months. This would signal the end of the recent bull market. Whether that happens will depend largely on how the situation develops in Ukraine.
If the conflict is short-lived, there may not be a significant long-term correction. Mohir Kumar at Jefferies comments that the 2014 Crimea crisis “did not produce any lasting market impact”.
However, there are already signs that the ripple effect from this conflict may be far greater as Ukrainian and Russian forces enter a full-blown conflict.
There are other clouds on the horizon for the stock market. Escalating global inflation and increasing interest rates could have a long-term chilling effect on corporate profits as companies struggle to grow.
Should investors sell their FTSE 100 shares?
It’s an uncertain time, but unless you need the cash soon, it may make sense to hold onto your FTSE 100 shares. That’s because, even if the FTSE 100 plunges, history tells us that prices are likely to climb back up over time.
If you sell when prices are low, then you will crystallise your loss. But as long as you can afford to hold onto your shares, then you don’t need to worry that prices are temporarily depressed.
How does dollar-cost averaging work when the stock market slumps?
When the stock market plunges, it’s a good idea to go back to basics and remember the principles of long-term investing. One of those principles is dollar-cost averaging. That means investors carry on investing regularly whatever the stock market and the FTSE 100 are doing.
It’s a great idea because investing when the stock market drops is better value in the long run. Investors buying a FTSE 100 fund when prices have dropped can buy more for their money. That can lead to greater investment wealth once prices start to climb again.
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About the author
Alice is a Suffolk-based personal finance writer specialising in pensions, tax, investment and small businesses. She is a qualified Chartered Accountant and has previously worked for KPMG London and Tesco Plc.
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