A research note from JPMorgan on Thursday suggests that investor reactions to geopolitical crises often follow recognizable patterns. As fighting in the Middle East entered its sixth day, the bank reviewed market flows during the early stages of the 2022 war in Ukraine to identify potential parallels.
According to JPMorgan strategist Nikolaos Panigirtzoglou, retail investors initially remained relatively steady in equities when the Ukraine conflict began.
“In drawing parallels with the 2022 Ukraine war, the most notable flow was that while retail investors were patient with equities, avoiding selling for a month after the start of the Ukraine war, they were less patient with bonds and started selling bond funds immediately after the start of the war,” Panigirtzoglou wrote.
The bank noted that this patience eventually faded as investors came to believe the conflict would drag on and trigger a lasting inflation shock through higher energy prices.
“After a month, once it became apparent that the war would be protracted inducing a more persistent oil price/inflation shock, retail investors started selling both equity and bond funds in a persistent way,” the strategist added.
Commodity markets also displayed a distinct pattern during the period. JPMorgan observed that “gold buying roughly mirrored oil buying during 2022,” while the U.S. dollar strengthened as long as the U.S. Aggregate bond index remained under pressure.
The bank also pointed to more recent changes in investor positioning. It noted that market participants have been reducing exposure to crowded momentum trades in Japanese and European equities, as well as in emerging markets including Korea and Taiwan.
JPMorgan said the comparison with 2022 provides a useful framework for anticipating how investment flows could evolve during future geopolitical shocks.