The recent tenses between Russia and Ukraine, which took the traits of a war, allow us to make some considerations on which should be the features of a “geopolitical crisis-proof” investment.
Hoping for a rapid and diplomatic resolution of the war between Russia and Ukraine, given the terrible humanitarian consequences that it has already brought, we approach the issue from an economic point of view in this article. We do so while thinking about those who, in a critical situation of such magnitude, wish to shelter the fruit of their work, their savings and their investments, to ensure serenity and welfare to themselves and their loved ones.
The 5 main feature of a geopolitical crisis-proof investment
So, what are the features of the best investment within this context?
What allocation of resources can offer stability and serenity even during such a delicate time?
How can we minimize risks and volatility and, at the same time, maximize stability and returns?
Reduced volatility
Following a euphoric rally that, for some countries, lasted up to 18 months, almost all national indices have been strongly negative since the beginning of the new year. This happened because they have burned a large part of what they have gained during the last year and a half. Just consider that the Italian FTSE MIB index has lost over 5.5%, the German DAX 40 has lost over 17%, the British FTSE 100 over 5% since January 1, 2022, and even overseas things are not getting better since the Dow Jones is losing over 7%, the S&P 500 over 9% and the NASDAQ even almost 15%.
Certainly, a “geopolitical crisis-proof” investment must have a lower volatility, which, in such particular situations, can ruin the profitability of the investment itself.
Reduced sensitivity to the contagion effect
As set out in the previous paragraph, it’s clear that no index and no financial investment is unaffected by the contagion effect and the so-called panic selling those conflicts and diplomatic crisis generate. Even though bonds and gold are traditionally more stable, not even them can protect the investor. Despite someone consider cryptocurrencies as “new shelter goods”, they are subject to a higher volatility compared to the main indexes.
Even the real economy results more sensitive and interconnected that we can imagine, so much that the estimates of 2022 GDP growth have recently been cut both in Europe – which is affected by the war from an energetic point of view due to its dependence on Russian gas – and in the United States and in many emerging economies.
An investment able to protect the investor from the consequences of diplomatic crisis and war conflicts must, therefore, provide greater resistance to this kind of threats.
Existence of an underlying and a link to its intrinsic value
As many investors know, the value of a share (this consideration can be extended also to bonds and raw materials), reflects more the speculative expectations than the real value of the company, its income statement and its balance sheet. That's why a company like Tesla has reached a global value of $1 trillion, despite not issuing dividends.
In this situation denominated by expectations and speculations, every war declaration and every exploded bomb throws the markets into panic and leads to wild sales. This happens mainly because the more it is foreseen that a company may get into difficulty, the more is sold expecting that other investors – after hearing the news – will start selling too, leading to a fall in price.
If this is what usually happens in financial markets, it never happens in the real estate market, where – except bubbles – a property’s market value reflects much more its “intrinsic value”.
The best investment to face such a delicate moment should therefore have an underlying with a value as "intrinsic" as possible.
Profitability and real value
As those who directly invest in shares know, not through mutual funds or ETFs, some companies periodically take out coupons. It usually consists of a minimal percentage – in most cases less than 1% per year – compared to the value of the share which, following the coupon payment, “loses” that same value. Clearly, it’s not the coupon that motivates investors’ choices, but the possibility/probability that the share will gain price in the short-medium term. Moreover, it is equally evident that, given the low entry/exit costs and the scarce bonus for their loyalty, investors rarely acquire shares with the aim of keeping them for a long time (long-term investors) while it’s easier for them to behave as “speculators”.
This also makes the determination of the “intrinsic value” of a company difficult, and so, of the share. On the contrary, for alternative investments, such as already rented properties, knowing how much the annual lease amounts to, it’s easier to establish a “real value”, that is how much an average investor would spend to purchase it.
The higher is the income of an investments, the stronger its value in front of speculative phenomena is.
Safe haven assets
Due to the heavy liquidity injections perpetuated for years by the main Central Banks, there are no safe haven assets that act as such.
We should just think that even gold has lost its contrarian function, often raising and falling along with financial markets, instead of counterbalancing them.
Within this framework, the dollar has taken the role of a “safe haven asset” gaining value against the euro, the pound sterling and other currencies. This happened because investors consider that the dollar is less exposed to the Ukrainian tragedy and to the economic sanctions applied to Russia, but they also consider it the mirror of a dynamic and healthy economy.
As we already saw in the “Best Investment of 2022” article, the inflation in the USA is not only “imported” due to rising energy costs, such as in Europe.
In fact, inflation in the United States has already determined wage increases that are going to fuel the economy itself.
Investments in dollars, therefore, are more diplomatic crisis-proof than those made in euros and in other currencies.
Conclusion: it’s time to consider High-Yield Real Estate Investments in the United States.
Due to its intrinsic features (reduced volatility, reduced sensitivity to the contagion effect, the existence of an underlying intrinsic value, high profitability and dollar currency) the US market of already rented real estate is one of the best “geopolitical crisis-proof” investments.
If you wish to evaluate this kind of investment, you can visit the “Invest in the USA with OPISAS” page of our website or you can write to contact@opisas.com to schedule a meeting with a consultant, who can offer you all the assistance you’re looking for and answer your questions.
