The world’s been at (relative) peace for so long that many readers may have no experience of how to invest during wartime. Other may need a refresher as it is time to wave goodbye to the post-Berlin Wall peace dividend.
In a global sense investing for war (or for deglobalisation) is a concentrated version of investing for inflation. Wars don’t destroy global markets; they disrupt them in a lopsided fashion. War generates a supply-side shock and the resultant inflation is hard to fight because it comes from broken logistics chains and energy insecurity, not from overheated demand.
History shows that asset markets price in the worst-case scenario early, often within days or weeks of escalation. By the time investors feel the emotional pressure to act, most of the asset price carnage will have already occurred. From then on markets start stabilising and uncertainty begins to decline, even if the underlying conflict continues. Key for investors, then, is how the war affects the economic system in which their assets operate.
What are the lessons from past wars?
In World War 1, financial assets experienced initial falls but once the economic direction became clearer (particularly industrial war production), equities bounced. Economies outside the conflict, such as the US, benefited from capital inflows and industrial demand, effectively turning war into a tragic form of economic stimulus.
World War 2 again saw markets initially fall sharply, with US equities bottoming in 1942 — well before the outcome was known. After that, despite horrendous destruction, markets ran, driven by industrial expansion, fiscal stimulus and improving visibility on the eventual outcome.
A similar analysis applies to the Iran-Iraq war (which featured burning oil tankers all over the Gulf) and the first Gulf war of 1990-1991. Markets react to uncertainty resolution, not the presence of conflict. The lesson: markets bottom at peak uncertainty, not peak damage. Investors who wait for “good news” often miss a significant portion of the recovery.
We suspect that the stronger dollar is a short-term war phenomenon
The Vietnam War provides a different type of lesson. Here there was no single “war crash” in equities. Instead, the 1970s bears were driven by inflation and the breakdown of Bretton Woods. In this case, the war was a contributing factor, but the primary drivers of poor investment returns were policy responses and macroeconomic mismanagement. The lesson: wars often matter less than policy responses. With Vietnam, the markets priced the economic consequences of war. Understanding what is being priced is more important than noisy headlines.
How and when to respond
When is “cut and run” rational? The simple answer is when your assets are stuck in the middle of a war zone. Examples include continental Europe during World War 2 or Russian assets in the case of Russia’s war against Ukraine. This can be the result of physical destruction or institutional breakdowns that lead to hyperinflation, capital controls or forced currency conversion. In such circumstances, the focus shifts from return generation to capital preservation.
Different asset classes respond differently to conditions of war. Equities typically fall over uncertainty but recover as conditions stabilise. They often perform well in the later stages of conflict, particularly when supported by fiscal expansion. Bonds deliver poor real returns due to inflation, but a global hegemon can be an exception to this.
Commodities and commodity producers (including energy and agricultural products) often benefit directly from conflict due to supply constraints and increased demand. These assets can act as a hedge against inflation and geopolitical risk. Gold can perform well in times of systemic stress, but not if real interest rates rise.
Not much has shifted for investors who were already positioning for structural inflation, but what has changed since January 2026?
- Monetary policy globally will be less benign, with no cuts and possible hikes;
- South Africa’s inflation will bounce 1% higher; however, global growth remains feasible, albeit a bit tougher to realise;
- The temporarily stronger US dollar will not negate the case for switches to emerging markets (even if they are more oil sensitive than OECD markets);
- Alternative energy will receive a huge marketing boost, while the merits of metals miners remain intact.
SA bonds are probably still fine, though the wary could ease from long-dated to medium-dated. We suspect that the stronger dollar is a short-term war phenomenon.
Markets don’t wait for peace — they look for paths of least resistance. The challenge for investors is not predicting the end of war but avoiding the costly mistake of reacting the wrong way at the wrong time.
Warwick Lucas
