War, Markets and the Importance of Staying Invested

War, Markets and the Importance of Staying Invested

An analysis of 14 major geopolitical conflicts since 1941 – examining drawdowns, recovery timelines, and 1-year forward returns to understand how equity markets truly respond to war,

Periods of geopolitical conflict often trigger anxiety in financial markets. History, however, suggests that the relationship between war and equity markets is more nuanced than commonly perceived.

Looking at major conflict events since the Second World War, equity markets have typically experienced drawdowns in the range of 20–25% from peak to trough. Importantly, these declines were rarely caused by the conflict alone. In most cases, markets were already contending with broader economic pressures such as inflation shocks, financial crises or tightening monetary conditions.

What stands out is the behaviour of markets after the trough. In the majority of cases, equities have delivered strong positive returns over the following 12 months, often exceeding 20%. Markets tend to price uncertainty quickly. Once the contours of a geopolitical event become clearer, the risk premium that built up during the period of uncertainty begins to unwind.

For investors, the lesson has been consistent. Remaining invested through periods of uncertainty, while managing drawdowns prudently, has historically proven more effective than reacting to headlines.

Over the past twelve months, despite an environment marked by uneven markets and geopolitical tensions, Itus Fundamental Value Fund has delivered a return of 22.8%, generating an alpha of 7.7% over the benchmark. This outcome has been driven by our positioning in sectors such as mining & minerals, financials, consumption and chemicals, combined with disciplined stock selection and careful portfolio weight management to control risk.

In the current volatile environment, we believe this combination of sector positioning, bottom-up stock selection and dynamic portfolio weighting will continue to help us navigate uncertainty. Our focus remains unchanged: building portfolios that are resilient across cycles while compounding capital steadily over the long term.

Data Table – War events and how markets reacted:

Source: Itus Research & 360One Research

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