JPMorgan is cautioning that even though the current geopolitical climate might provide the background for sell-off pressure in the markets as seen over the past few days, this might not be the time to sell stocks.
Monday has already seen European markets open lower as investor anxiety over the Russia-Ukraine conflict soars, while Wall Street is likely to follow this trajectory.
But while the downside pressure holds, JPMorgan’s head of equity strategy Mislav Matejka says that instead of panic selling, investors would be in a better position if they focused on key market fundamentals.
In a note to clients, Matejka noted that there’s a high risk of getting it wrong if panic overwhelms.
“If one is selling on the back of the latest geopolitical developments now, the risk is of getting whipsawed,” the analyst wrote.
According to JPMorgan, markets have historically recovered pretty quickly from downside during military conflicts. They note that this is especially the case if the conflicts are “localized.”
In such a scenario, the bank added, the geopolitical chaos “did not tend to hurt investor confidence for too long, and would end up as buying opportunities.”
Weaknesses in the market
JPMorgan’s outlook, reported by Bloomberg, follows Russia’s attack on Ukraine and the ensuing war that is entering its second week of armed combat.
While Ukraine has remained firm in its resolve to defend itself, Russian president Vladimir Putin continues to be defiant. Meanwhile, the US and the EU have imposed tough sanctions, and cut the country’s banks off the global banking system SWIFT.
Matejka notes that longs in the European region are likely to underperform as the crisis continues. However, looking to any positions longer than a month should be looked at “as fundamental overweights.”
According to the strategist, this outlook will be most likely if further sanctions do not cut commodity flow out of Russia.
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