The impact of geopolitical risks on financial markets

The year 2024 brought a number of significant geopolitical events that had a major impact on global financial markets. From armed conflicts to political instability and changes in international trade relations, all these factors have played a key role in shaping the market environment and affecting investor confidence. This article analyzes how specific events of 2024 affected financial markets and what their consequences were.

Conflicts and their impact on markets

One of the most significant conflicts of 2024 was the escalation of tensions between China and Taiwan. After a series of military exercises and airspace violations, a military clash occurred in the South China Sea in February 2024. This conflict has created huge uncertainty in global markets, leading to a sharp drop in Asian stock markets. Hong Kong's Hang Seng Index fell more than 10% in one week, while prices of semiconductor companies that depend on Taiwanese exports fell 15-20%.

In response to the conflict, investors have turned to safe-haven assets such as gold, whose price has hit its highest level in a decade. The US dollar and Swiss franc also strengthened significantly, putting pressure on emerging market currencies such as the Indian rupee and the Brazilian real.

Political instability

2024 also saw significant political instability in South America, particularly in Argentina, where massive protests broke out following the presidential election. The newly elected government announced radical changes in economic policy, including the nationalization of some industries and restrictions on the foreign exchange market. These moves caused panic among investors and led to a massive outflow of capital from the country.

The Argentine peso fell more than 30% against the US dollar in a matter of weeks, driving up inflation and deepening the economic crisis. Stock markets in the region, particularly in Brazil and Chile, were also hit as investors feared the spread of political instability to other countries in the region.

Changes in international trade relations

The year 2024 has seen an ongoing trade war between the United States and the European Union, which has escalated following the imposition of new tariffs on automotive and technology products. The US administration imposed a 25% tariff on European car imports in June 2024, leading to a significant increase in tensions between the two economies.

European stock markets, especially the automotive sector, responded with a sharp decline. Shares of German auto giants such as Volkswagen and BMW fell more than 12% in a matter of days. Long-term uncertainty about the future of transatlantic trade has also led to lower business investment and slower economic growth in the eurozone.

Additionally, the European Union's retaliatory measures, which included increased tariffs on American technology, negatively impacted shares of companies such as Apple and Tesla, contributing to the NASDAQ's 8% decline during the month of July.

Investor confidence and market volatility

2024 was also a year of high volatility in the financial markets. The VIX index, which measures expected volatility in the US stock market, has peaked above 30 points several times during the year, reflecting heightened uncertainty among investors.

Investor confidence was undermined by a combination of geopolitical risks, including the aforementioned conflicts and trade disputes. This decline in confidence has led to a significant outflow of capital from emerging markets and a decline in the value of riskier assets such as technology stocks and emerging market currencies.

Conclusion

Geopolitical risks in 2024 had a profound impact on global financial markets and investor confidence. Conflicts, political instability and changes in trade relations have led to significant fluctuations in the markets and reduced the willingness of investors to accept risk. During such periods, it is crucial for investors to carefully monitor geopolitical events and adjust their investment strategies to minimize losses and take advantage of the opportunities these events bring.