Market Comment: a personal view 17th June

Let us be clear what is meant here. Geo-political does not mean financial news, natural disasters or economic activity. It is those events often, but not exclusively, triggered by governments, their oppositions, or forces within nations or regions that may alter the way in which a country or region may behave in future. In other words, it is wars, terrorist attacks, civil unrest, uprisings and those sort of happenings that can be difficult to predict.

Arguably, the twin towers terrorist attack in New York was a Geo-political event compressed into a small time frame. It had consequences for business and financial life for years afterwards, some of which remain. Try entering an office complex in a major city today and you will find tighter security of a degree that those of us brought up in the sixties still find oppressive. And would the situation in Afghanistan be the same without this attack?

Today we have two Geo-political flashpoints that could well impinge on all our financial wellbeing. In the Middle East we have conflict between the Sunni and Shia divisions of the Islamic faith that threaten to make the recent spats between Anglican and Roman Catholic Christians in Northern Ireland pale into insignificance. In Eastern Europe, Russia and the Ukraine are at loggerheads.

Understanding why and what it might mean for investors in either case is a tough call. But both could – and are – affecting the price of oil and gas. The bad news is that oil is likely to cost more in the shorter term because of troubles in the Middle East. The better news is that the problems in Ukraine in particular will drive Europe to seek alternative energy sources. In the meantime, we investors have to live with Geo-political concerns overhanging markets. And there could be others in the pipeline which we simply cannot foresee.

Not all Geo-political events have to be negative for financial markets, though the odds tend to favour an adverse reaction from investors. Markets do not like uncerta inty, after all – and this is just what these crises can engender. Indeed, if there is one lesson to be learned from the current crop of such events, it is that markets are behaving in a more robust fashion than seems possible. I hope we can take comfort from this.