The war on Iran is hammering UK stocks. The FTSE 100 fell 1.2% on Monday (2 March) and was hit even harder Tuesday, down 2.75%. Any investor who checks out their ISA or SIPP will see the impact, and it will hurt.
Some may panic and wonder whether to sell. Others will view the turmoil as a buying opportunity. So which is it?
First, and most importantly, it’s a human tragedy. Lives are being lost, and the impact on the stock market is the least of it. But it still leaves investors with a decision. And at times like this, it’s best to return to old principles. And the first is to stay calm and resist the temptation to sell in a crisis. This week’s stock market volatility may be scary, but it’s nothing new.
The FTSE 100 is falling
Markets will always have their moments of madness, it’s the price investors pay for the superior long-term returns from equities. As a rule, investors should never invest money they’ll need in the next two or three years. If somebody has £35,000 in a Stocks and Shares ISA they need for a property deposit next week, they’ve got their strategy badly wrong.
Investing is for long-term money. That way we can sit tight and wait for the panic to subside. While reinvesting every dividend, to pick up more shares at today’s lower prices.
There’s a second thing we can do, and that’s seize the moment to buy bargain shares. But it first pays to check why they’re falling. For instance, yesterday’s biggest FTSE 100 faller was Intertek Group, down more than 18%. But that had very little to do with Iran, more to a disappointing set of results, landing on a bad day.
IAG shares are a risky buy
It’s a different story with International Consolidated Airlines Group (LSE: IAG). Its shares slumped 5.44% yesterday, which followed a 5.48% drop on Monday. The British Airways owner is on the front line of current uncertainty as Middle Eastern travel hubs close, grounding flights.
Yet the shares are down a modest 7.55% over the month, so I wouldn’t call this a generational opportunity. That kind of movement can happen at any time. The IAG share price is still up 13.7% over a year, and 173% over two.
Last month IAG published solid full-year results, with operating profit up 13% to €5bn. It promised to return €1.5bn of excess capital to shareholders in the next year. Yet the shares dropped, as guidance suggested growth could slow. So IAG was already stalled, even before this week.
It’s cheap though, with a price-to-earnings ratio of 6.44, but airlines are usually front and centre when it comes to just about every shock, from weather to recessions to pandemics and what we’re seeing at the moment. There’s a reason it’s available at a discount. If the war drags on, it could fall a lot further.
I personally hold IAG but at this early stage, I think it’s too early to consider buying more. The next few days or weeks could throw up a once-in-a-decade opportunity to buy bargain FTSE 100 shares, but I don’t think we’re at that point yet. Like most people I hope the war will be over quickly, so we never get to that point.
