The Fog of War

The fog of war

04 March 2022

Carl von Clausewitz was a Prussian general who fought in the French Revolutionary and Napoleonic Wars and the phrase “fog of war” is often attributed to him. What he actually said, “war is the realm of uncertainty; three quarters of the factors on which action in war is based are wrapped in a fog of greater or lesser uncertainty.” The phrase has now become a cliché, used to describe the complexity of military conflicts, capturing the uncertainty of outcomes. Uncertain outcomes even for those not involved in the war, but potentially affected, like global markets and therefore investors.

There is no doubt the Russian invasion of Ukraine will have a short-term impact on markets. The price of energy, it has been noted, will rise and has risen. In a global economic environment already facing inflationary pressures, the impact will likely influence the price of goods and services and supply issues are likely to mount.

As one would expect, historically wars and conflict create uncertainty for markets. You can see the impact of select geopolitical events on global stock markets below:

MSCI World IndexCalendar days to
Market shock eventsEvent dateOne-DayTotal DrawdownBottomRecovery
Russian invasion of Ukraine24 Feb 2022(1.6%)
Boston marathon bombing15 Apr 2013(1.7%)(2.9%)310
London subway bombing5 Jul 20050.4%(0.2%)23
Madrid bombing11 Mar 2004(1.7%)(2.8%)1319
US invasion of Iraq19 Mar 20030.8%(1.9%)1214
US terrorist attacks11 Sep 2001(1.5%)(11.5%)1030
Iraqi invasion of Kuwait2 Aug 1990(2.2%)(19.1%)57200
Yom Kippur War6 Oct 1973(0.2%)(0.5%)49
Munich Olympics5 Sep 1972(0.2%)(3.9%)4159

Source: VanEck, MSCI, Bloomberg. All returns in Australian dollars. You cannot invest in an index. Past performance is not a reliable indicator of future performance.

Looking back further to the S&P 500, which has a longer history than the MSCI World Index:

Table 2: Geopolitical events and stock market shocks (1940 to 1969)

S&P 500Calendar days to
Market shock eventsEvent dateOne-DayTotal DrawdownBottomRecovery
Tet offensive30 Jan 1968(0.5%)(6.0%)3665
Six-day war5 Jun 1967(1.5%)(1.5%)12
Gulf of Tonkin incident2 Aug 1964(0.2%)(2.2%)2541
Kennedy assassination22 Nov 1963(2.8%)(2.8%)11
Cuban missile crisis16 Oct 1962(0.3%)(6.6%)818
Hungarian uprising23 Oct 1956(0.2%)(0.8%)34
N Korean invasion of S Korea25 Jun 1950(5.4%)(12.9%)2382
Pearl Harbour attack7 Dec 1941(3.8%)(19.8%)143307

Source: LPL Research, S&P Dow Jones Indices. All returns in US dollars. You cannot invest in an index. Past performance is not a reliable indicator of future performance.

From a markets perspective, the impact of the COVID shut downs was much worse. Thinking about liquidity and credit crises such as the 1987 stock market crash and the GFC, these had a much greater impact on investments.

Through all of these events, from an investing perspective, it is important to concentrate on long term goals. Successful long-term investors survive short-term falls by sticking to investment principles that have withstood the tests of time. For portfolios, this may include better diversification. For equities, investing in profitable companies with strong balance sheets and stable earnings has historically given resilience to portfolios.

As you can see above, stock markets tend to recover from geopolitical events. The fog of war for investors is they do not know how bad the impact will be and how long it will take the market to recover. Should they be lucky enough to have their lives and good health, it is important then to remember the fog of war for those directly affected by the war. Our thoughts are with the innocent victims of this conflict and we recognise how lucky we truly do have it in Australia.

Any views expressed are opinions of the author at the time of writing and is not a recommendation to act.

VanEck Investments Limited (ACN 146 596 116 AFSL 416755) (‘VanEck’) is the issuer and responsible entity of all VanEck exchange trades funds (Funds) listed on the ASX. This is general advice only and does not take into account any person’s financial objectives, situation or needs. The product disclosure statement (PDS) and the target market determination (TMD) for all Funds are available at You should consider whether or not an investment in any Fund is appropriate for you. Investments in a Fund involve risks associated with financial markets. These risks vary depending on a Fund’s investment objective. Refer to the applicable PDS and TMD for more details on risks. Investment returns and capital are not guaranteed.

Source – VanEck – Arian Neiron, CEO & Managing Director – Asia Pacific


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