Pricing Armageddon: what should investors do faced with nuclear war?

A big “buy” button?

(Image credit: Finger pushing a nuclear button © Olivier Le Moal / Alamy)

Russia’s invasion of Ukraine is having a far greater impact on markets than the average geopolitical incident from recent decades. There are good reasons for that.

In a report issued at the start of this month, analyst Peter Berezin at BCA Research estimated that there is “an uncomfortably high 10% chance of a civilisation-ending global nuclear war over the next 12 months”. The obvious question being: what does that mean for markets?

MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Buy on a spike in fear

Berezin’s report has grabbed a few headlines along the lines of “nuclear war is bullish for shares”. Clearly, this isn’t his point. A story that US trader Art Cashin tells about the 1962 Cuban missile crisis is more illustrative. Cashin wanted to sell stocks, but his mentor, an experienced old hand, told him: “Look kid, if you hear the missiles are flying, you buy [stocks]. You don’t sell them... Cause if you’re wrong, the trade will never clear. We’ll all be dead.”

In other words, invest as if nuclear war won’t happen, because if it does, you won’t care about your portfolio. This makes sense. Even if you want to plan for the scenario of a devastating but survivable nuclear exchange (perhaps you have a holiday home in New Zealand), you’re still looking at a world where physical gold is about the only asset of potential use, and we’ve always suggested that MoneyWeek readers own a bit of that, so no change there.

So what’s the opportunity? Berezin argues that a spike in Google searches for “nuclear war” plus a run on potassium iodide (an anti-radiation treatment) implies that “a freak-out moment is coming, which will present a good buying opportunity for investors”. But it’s a bit more nuanced than “buy the dip”. What’s arguably more useful about Berezin’s report are his points on what a new cold war (which unlike nuclear war, seems inevitable) means for the economy.

Higher government spending on defence and alternative energy; a faster retreat from globalisation; and maybe even a tendency for households to save less, given “the ever-present danger of war”. All of these imply both higher inflation and higher interest rates. So if markets do “freak out”, be selective about the “bargains” you buy – because all of the factors that have been scaring markets for the past six months or so are only going to get worse.

Explore More