How to Invest in Times of Geopolitical Uncertainty

How to Invest in Times of Geopolitical Uncertainty

How to Invest in Times of Geopolitical Uncertainty

Eastern Europe has long been plagued by periods of uncertainty. Ukraine is in the midst of . Things have got so bad that Ukrainian President Petro Poroshenko even called on NATO to send ships to the Sea of Azov to help protect the country from further hostilities. Also, Hungary is in the midst of a diplomatic spat with Ukraine, which escalated due to military movements on the two countries’ shared border. Georgia might be worse off, with the fallout of last December’s controversial elections still threatening to undermine the country’s first female president, Salome Zurabishvili. Not to mention Georgia’s uneasy stand-off with Russia, since the 2008 Georgian-Russian conflict.

These uncertain times are a huge worry for Eastern Europe’s investors. But there are ways to beat a market rendered volatile by these kinds of uncertainties.


Invest in gold


Last September, gold prices spiked to a two-year high, with the Financial Times explaining the spike was caused by a safe haven demand. During that time, traditional stocks plunged, while the opposite happened with gold. That occurred because the yellow metal generally yields steady returns. FXCM notes how gold offers perceived stability for many traders, unlike stocks and other investment mechanisms. These tend to fluctuate in times of crises as stocks are dependent on the growth of companies, and uncertainty makes that growth uncertain.

The value of gold, on the other hand, holds steady for the most part, earning it a safe haven reputation. Cognisant of this, central banks in the region have started buying more gold, beginning with Poland last year and Hungary this year. The Hungarian National Bank, which now owns 31.5 tonnes of gold, justified the purchases mainly as a means to improve the country’s holdings’ safety (and as a nod to its golden-era). In other words, it is banking on gold as a safety net in case of turmoil. Unfortunately, Ukraine has lost nearly half of its gold reserves (42.6 tonnes) it once had in 2014, going nearly bankrupt, from fighting the pro-Russian separatist movement in the East.


Invest in the equity market


IMAGE CREDIT: Pexels

The equity market is highly vulnerable to political and economic turmoil; conventional wisdom says avoid it. We say don’t. This asset class can yield the highest returns over time, hence, the innate risk in the first place. So, our recommendation is to pick the most viable shares, and ride them out. These are long-term investments, so don’t hesitate and sell just because you see a hint of trouble. Chances are, they’ll pay out in the future.

Some investors tend to overreact in times of uncertainty. In these cases, they are likely to sell their own stocks, in anticipation of plummeting prices. You should then take this as an opportunity to buy these shares at lower prices. In this regard, we recommend that you buy stocks in commodities, utilities, real estate, and energy. Stocks like Centerenergo (energy) in Ukraine, CCC SA and LPP SA (commodities–retail) in Poland, Trigon Property (real estate) in Estonia, and CEZ (energy), and Kofola CeskoSlovensko (commodities–beverages) in the Czech Republic are a few examples. They will take a hit when markets are down, but they will ultimately recover.


Invest in ETFs

Image Credits; PEXELS
IMAGE CREDIT: Pexels

An article by Forbes titled ‘Investing in Times of Uncertainty’ recommends diversifying your portfolio during uncertain times. The easiest way to do so is “by opting for investments options like market tracking exchange traded funds (ETFs).” It is, in fact, the “easiest, safest, most transparent and cost-effective way” to diversify. This is especially true given how ETFs have surged in Eastern Europe since 2017. This surge can be attributed in part to the vibrant economies of Czech Republic, Romania, Poland, Hungary, and Slovenia. Two ETFs you might want to consider in this regard are Lyxor Eastern Europe and Amundi MSCI Eastern Europe. The former has assets under management worth ₴6.4 billion UAH (€211 million), with a total expense ratio of 0.50%; the latter on the other hand, has assets under management worth ₴1.5 billion (€49 million), with a total expense ratio of 0.20%.

 


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