5 assets that perform during wartime, and 5 that don’t!

What are some assets that perform during wartime?

Periods of war create sharp shifts in capital flows, inflation expectations, supply chains and government spending priorities. Some asset classes historically benefit from those forces, while others tend to suffer.

Outcomes always depend on the scale and location of the conflict, but the certain patterns have appeared repeatedly across major 20th and 21st century conflicts, and this article outlines them!

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5 assets that perform during wartime!

1. Gold

Gold is one of the clearest beneficiaries. In wartime, investors worry about currency debasement, sovereign risk and financial instability. Governments often increase deficit spending to fund military operations, which can weaken fiat currencies and raise inflation expectations.

Gold has literally no counterparty risk and is widely viewed as a store of value in systemic stress. During periods such as the 1970s oil shocks, the Gulf War and the early phase of the Russia-Ukraine war, gold prices strengthened as capital rotated into perceived safe havens. Of course, the risk you run is the tension unfurling quickly and gold prices dropping back to reality, as happened in the early 1980s.

2. Energy commodities

Energy commodities, particularly oil and gas, often perform well because war frequently disrupts supply chains or creates fears of disruption. Even if physical supply is not immediately curtailed, risk premia get priced into futures markets. Conflicts involving major producers or transport routes tend to tighten supply expectations, pushing prices higher. Higher oil prices can also be reinforced by increased military fuel demand.

3. Defence stocks

Defence sector equities typically outperform broader markets when geopolitical tensions rise. Governments increase military spending during war, expanding procurement budgets for weapons systems, logistics, cybersecurity and surveillance. Revenue visibility improves as long-term contracts are awarded. Earnings resilience and backlog growth make defence contractors attractive relative to cyclical sectors.

4. Agricultural commodities (and companies)

Certain agricultural commodities can rise during war because transport networks and fertiliser supply chains are disrupted. Grain prices, for example, spiked when major exporters were involved in conflict, reflecting tighter global supply and increased food security concerns. Food demand is relatively inelastic, so price adjustments can be sharp. This can also benefit agricultural equities, but not always – it depends on whether or not the disruption will benefit or hinder that company.

5. Government bonds

Some sovereign bonds, particularly those of stable reserve-currency countries, can rally in early stages of conflict due to flight-to-safety flows. The 10-year yield in particular! Investors may prioritise liquidity and capital preservation, pushing yields down despite deteriorating fiscal positions. This effect can reverse later if inflation accelerates.

5 assets that don’t perform during wartime!

1. Travel stocks

International tourism and airline equities tend to underperform. War increases perceived travel risk, raises insurance and fuel costs, and depresses discretionary cross-border movement. Demand drops quickly, and margins compress. Just look at the drop in Qantas (ASX:QAN) shares last Monday. Even though this airline was able to carry on as fine – it did not have to divert planes or cancel flights as Middle Eastern flights did; investors sold it off because the Red Roo was in the travel sector which would inevitably cop an impact.

2. Emerging market equities

Emerging market equities, especially in regions near any particular conflict, often underperform due to capital flight, currency depreciation and heightened sovereign risk. Foreign investment slows, and refinancing risk increases if global financial conditions tighten. Investors run to safer more established markets such as those in North America and Europe

3. Corporate bonds

High-yield corporate bonds can struggle because wartime uncertainty raises default risk premiums. Credit spreads widen as investors move up the quality spectrum, and refinancing becomes more expensive for leveraged issuers. The specific impact does depend from sector to sector.

4. Consumer discretionary stocks

Cyclical consumer discretionary stocks tend to weaken. Households facing inflation, uncertainty or potential conscription reduce spending on discretionary goods. Profit margins can be squeezed by higher input costs and weaker demand. Consumers would know what happened to prices for everyday goods after Russia’s invasion of Ukraine.

5. Property

Commercial real estate in affected regions can decline in value as business confidence drops and occupancy rates fall. Financing conditions tighten, insurance costs rise, and development activity slows. Even in non-combatant countries, global uncertainty can reduce capital flows into riskier property segments.

Conclusion

The overarching theme is that war reallocates capital toward safety, scarcity and state-supported sectors, while punishing leverage, discretionary demand and geographically exposed assets. This is no prediction as to how the current situation in the Middle East will end or what assets will perform well, it is just stating past precedent. Investment patterns this week suggest investors suspect it will be so once again, but it is no guarantee.