Putin warned this weekend that international sanctions on Russia are “akin to an act of war,” and hinted the conflict could spread beyond Ukraine unless the west changes course.
But despite the risk of “civilization-ending global nuclear war” rising to 10% over the next 12 months according to one strategist, investors should “stay bullish” and “largely ignore existential risk.”
“Although there is a huge margin of error around any estimate, subjectively, we would assign an uncomfortably high 10% chance of a civilization-ending global nuclear war over the next 12 months,” Peter Berezin, chief global strategist at BCA Research, wrote in a note to clients this week.
“Despite the risk of nuclear war, it makes sense to stay constructive on stocks over the next 12 months. If an ICBM is heading your way, the size and composition of your portfolio becomes irrelevant. Thus, from a purely financial perspective, you should largely ignore existential risk, even if you do care about it greatly from a personal perspective.”
Stock markets have swung wildly over the last few weeks as investors nervously eye Russia’s escalating war with Ukraine. The International Monetary Fund has warned Russia’s invasion of Ukraine and the international sanctions it has sparked will have a “severe impact” on the global economy.
Berezin also predicted there could be a sharp sell-off of assets in coming weeks as happened two years ago during the early days of the Covid-19 pandemic.
“Even if World War III is ultimately averted, markets could experience a freak-out moment over the next few weeks, similar to what happened at the outset of the pandemic.”
Stock markets have soared over the last two years, awash with cash following pandemic-era stimulus measures and ultra-low interest rates and climbing far beyond pre-pandemic levels.
“The risk of Armageddon has risen dramatically,” BCA’s note concluded. “Stay bullish on stocks over a 12-month horizon.”
This week, Federal Reserve chair Jerome Powell said the Fed still planned to raise interest rates this month for the first time in three years despite the global economic shock of Russia’s invasion of Ukraine, pointing to high inflation, a tight labor market and strong economic demand.