How Russia's war on Ukraine may affect stock markets

In times like these is useful to restate some fundamental investment principles. Picture: Shutterstock.
In times like these is useful to restate some fundamental investment principles. Picture: Shutterstock.

The world is facing challenging times, and as usual, I'm getting a raft of emails from people asking whether they should quit their investments before it's too late.

The other question many are asking is what likely effect the situation in the Ukraine may have on stock markets.

It is normal to feel apprehensive when the market has a downturn, especially when accompanied by the threat of war. I understand that. But I am comforted by the latest research from my long-term friend, Ashley Owen of Stanford Brown Private Wealth.

Ashley has analysed 27 military crises since the 1930s (including the German invasion of Poland that led to WW2; Pearl Harbour; the Korean War; Vietnam; the September 11 attacks and several Russian military invasions and attacks) tracking share market reactions with a particular focus on US and Australian markets.

His conclusion is that sudden military crises inevitably trigger abrupt selloffs in share markets, but almost all recover to above their pre-crisis levels within a few months, including during WW2.

The reason for this consistent rebound is that military activities generally lead to increases in demand, spending, company revenues and profits.

They are therefore positive for share markets, especially Australia, since military activity leads to higher commodities prices. The initial share selloffs are an understandable human reaction to the shock of the event, and the associated alarm, stoked by the media reaction.

Restate some fundamental investment principles

Historically, however, military crises have consistently represented buying opportunities for long term investors.

In times like these is useful to restate some fundamental investment principles.

1. The major factor that determines your wealth is the rate of return you can achieve. You will never get a decent return leaving money in the bank, which means you need to move to assets such as local and international shares that historically have given the best returns. Because these assets offer liquidity, they are also volatile, which means it is normal to expect regular and sometimes unexpected market movements.

2. You have to stay in the market. It's tempting to want to cash out and sit on the sidelines waiting for markets to bounce back, but historically the bigger the fall the bigger and faster the bounce-back. Almost invariably, people who try to time the market miss the bounce-back and find themselves stranded.

3. Volatility is normal. The Australian share market has averaged 9 per cent per annum (income and growth) over the last 120 years. But that doesn't mean you earn a steady 9 per cent every year: in some years it may give you 15 per cent to 20 per cent; in other years you may lose 10 per cent or more. That's the nature of markets. Returns tend to even out over time across the market as a whole.

4. The price of a share does not always reflect the value of the company. Some quality companies (like Sonic Health and Suncorp, to mention just two) have recently fallen around 10 per cent, yet their balance sheets are still in good shape and they should remain good long-term businesses. Investors can act in strange ways: they love to buy when the market is booming and shares are fully priced, but shy away when prices fall and the same shares are at sale prices. This means that sometimes you can pick up good shares at a discount.

5. Investment is a marathon, not a sprint. To quote Professor Paul Marsh of the London School of Business, "the long-run attractiveness of equities, in my view, is undiminished. You should take a long term view, and the long run is at least 20 years. You should focus on time in the market, not on timing the market."

It's impossible to say exactly when the current market turbulence will settle. However, we can be confident that the share market will eventually recover - it always has done. Good quality companies running real businesses and making sustainable earnings and dividends should recover well, as they will once again be sought by investors.

Noel answers your money questions


My husband and I have a self-managed super fund. Several years ago he reached the transfer balance cap, then $1.6 million and shortly after retired and commenced a pension. He soon discovered that he was not enjoying retirement and returned to work.

He earns a good income thus we do not need the drawdown from his pension. It seems a waste to be removing large amounts of money out of the tax protected super environment when the money is not needed.

I am still working and have been using his pension income to make large non-concessional contributions to my own super. July 2021 will be the last time I can do this as I will have reached the cap of $1.7 million. Can my husband revert to the accumulation phase? If so does he lose the tax free status of his remaining transfer balance cap (which is still approximately $1.6 million?)


John Perri of AMP Technical confirms that your husband can commute his pension and move back to the accumulation phase. Withdrawals from accumulation phase will continue to be tax-free if aged 60+, however earnings in accumulation phase will be subject to tax at up to 15 per cent on income and 10 per cent on capital gains.

Your husband can move back into pension phase at a later date, however advice should be sought at that stage to determine how much he can transfer back to remain within his personal transfer cap.


My father purchased shares in the Commonwealth Bank many years ago when they were first floated in 1991. Upon his death in 2014 his shares were transferred automatically to my mother as part of his estate.

My mother passed away last year and her shares were sold by a stock broker as part of the settlement of my mum's estate. Is Capital Gains tax payable from my mum's estate proceeds and if so does the calculation of tax go right back to the price that was paid by my father many years ago?


Yes. The shares were a post CGT asset in your father's hands which means your mum inherited them at his cost base, probably the price he paid for them. So the estate has to pay tax on the gain made in both your father's life time and the period your mother owned them.

The lesson here for readers is that if those shares were passed on to any beneficiaries of the estate instead of being sold, the CGT could be deferred once more. CGT is only triggered when the beneficiary sells an asset.


Are superannuation funds guaranteed by the Government in the same way as banks and other deposit taking institutions? If so, what is the limit of the guarantee?


A super fund is not an asset class like property or shares but merely a structure which holds assets in a low tax environment.

Therefore, there is no government guarantee on superannuation funds but of course if you had bank deposits in your self managed super fund, they would be subject to the normal government guarantee on bank deposits.

  • Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email your money questions to
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