With each world war, the stock market goes into overdrive for a few days, sometimes several weeks. Stocks fall, but other stocks can benefit. The newspaper did the exercise with Luc Girard, portfolio manager at Desjardins Securities.
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First thing to know: fluctuations are completely normal during a war. Depending on the magnitude, they disappear following a few weeks and we can quickly see a rise in the stock market.
“Historically, conflicts, it causes a lot of nervousness, volatility, but it is on the short term. In the medium or long term, it has no influence and investors return to the fundamental,” says Mr. Girard.
Still, some sectors have been prized by investors as tension has grown between Russia and Ukraine.
Natural resources
“When the crisis hit, we saw oil companies, natural resources, everything that is edible resources, wheat for example, all of that appreciated,” explains the manager.
The price of the cereal even reached a historic level before retreating yesterday. Wheat gained 7% over a week with fears over production, while Ukraine and Russia are two major producers.
“There might be an imbalance between supply and demand, so at that time, prices explode,” said Mr. Girard.
Maybe not for long
As for oil companies, shares of Shell (+2.45%), ExxonMobil (+0.88%) and Chevron (+5.93%) have risen over the past five days.
The defense sector also stood out. The action of the world’s number one military, Lockheed Martin, had a thunderous week with an increase of 5.2%, as did Raytheon (+ 4.2%), General Dynamics (+ 6.7%) or Thalès (+8.14%).
On the other hand, the manufacturer Boeing, which also has a military division, but also civil aviation, fell by more than 5% over the week.
“These stocks performed well on news of the geopolitical conflict. But will it continue or stop? At this time, these stocks have done well, but there might be profit taking in the coming days,” the manager assures us.
In Quebec, players like Héroux-Devtek (+ 1.5%) and CAE (+ 0.9%) who have contracts in the defense sector benefited more moderately from the conflict.
Back to basics
But all that might change quickly, depending on the intentions of dictator Vladimir Putin, and investors might return to more fundamental values.
“The market can turn around quickly and we go back to what is normal in the economic cycle, because we think the economy will not fall. At this time, investors are moving towards financial and industrial resources, health and consumption”, concludes the manager.
“In the last two days, the stock market has recovered. We went into a stock market correction that was too exaggerated. We realize that perhaps the crisis will be resolved more quickly,” concludes Mr. Girard.
The armament benefits!
Five-day increase
- Lockheed Martin : +5,2 %
- Raytheon : +4,2 %
- General Dynamics : +6,7 %
- Thales: +8,14 %
