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Geopolitical Unrest Sparks Sell-off

 3 min read / 

 Thursday 17th July tragically saw Malaysian Airlines flight MH17 crash over the Ukraine-Russia border, with none of the 298 passengers on board surviving.  This news followed earlier reports of advanced EU and US sanctions on Russia. The day also saw Israel begin a ground invasion into the Gaza Strip to combat Hamas forces, stepping up its 10-day military operation which has already resulted in the death of around 250 Palestinians. With global disarray ubiquitous, global equities markets took a tumble, lapsing into the red as caution spread through international trading.

In the US, the Down Jones Index toppled sharply late in the day, dropping 161.39 points (1%) to below the symbolic threshold of 17,000. The pervasive political uncertainty is said to have led US investors to seek refuge in”safe-haven assets”, such as US Treasury Bonds and assets such as Gold, in order to limit their exposure to inevitable losses elsewhere.  According to Art Hogan, chief market strategist of Wunderlich Securities in New York, “the market doesn’t like uncertainty and this is what we are facing now”. The markets certainly appear to be treading on eggshells amid  these geopolitical skirmishes and the evidence of the sudden shift to safe-haven assets was clear to see – gold prices jumped 1.3% per ounce following strong demand  and the benchmark US 10-year Treasury note climbed 15/32 in price, dropping the yield to 2.482 percent.

Likewise, equity markets across Asia sagged, with Japan’s Nikkei stock average toppling 1.1% after a previous recovery following expected falling U.S interest rates. According to Hiromitsu Kamata, Head of the Japanese Equity Target Department, the geopolitical concerns have “clouded such optimism” in Asian share markets. The Malaysian plane crash and Israeli ground offensive, whilst seemingly isolated occurrences within the context of global financial markets, may have the potential for greater equity turmoil according to Kamata.

Market sentiment is becoming increasingly fragile, with Wall Street recording its worst day since April on Thursday after losses escalated in the final hour of trading. However, analysts expect the market impact of these global disorders to be relatively short-lived. This transience may lie in the idea that another long-term political (or other) catalyst is required to extend any further market apprehension, with global share prices recovering in early trading on Friday. The news of the crashed plane – of vitally ambiguous nature (who shot the plane down?) in relation to creating uncertainty in equity markets – sent the Vix Index (a measure of volatility in global markets) shooting up in excess of 16 percent. However, temporary refuge in safe-haven assets should be sufficient to help global investors weather the storm before moving back to more conventional ventures. Whilst the Israel-Hamas conflict is set to perpetuate into future weeks, more certainty with regards to the Malaysian Airlines crash should help to steady the markets.

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