Investors are constantly warned of an impending crisis in financial markets with the resultant damage to asset prices. Yet while a crisis can have a severe impact on markets, investors who avoid herd-like selling can often ride out the slumps. For active and contrarian fund managers, such periods of disruption can also present opportunities.

The below chart reveals the impact on financial markets of eight memorable political and market crises over the last twenty years. The chart shows the impact each event had on the performance of US shares, measured by the Dow Jones Industrial Average, on the day of the crisis and over the subsequent 150 trading days.

Dow Jones Industrial Index performance following a crisis

Source: Lonsec, Bloomberg, FE

In all but one case—the Global Financial Crisis which began in 2008—the Dow Jones had rebounded by the 150-day mark and in many instances had produced gains that exceeded the initial loss. Lonsec does not recommend a strategy that seeks to time the market but the analysis highlights that in general major crises have an only short-term impact on markets.

Release ends

Important information: Any express or implied rating or advice is limited to general advice, it doesn’t consider any personal needs, goals or objectives.  Before making any decision about financial products, consider whether it is personally appropriate for you in light of your personal circumstances. Obtain and consider the Product Disclosure Statement for each financial product and seek professional personal advice before making any decisions regarding a financial product.