The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.
The terror attacks in Brussels, Belgium, will disrupt lives in the near term as airport security tightens and countries step up domestic security. The initial market reaction to the violent event was expected, but investors quickly retraced losses.
Similarly, the CAC 40 index recovered shortly after the Paris attacks last November. This is because the impact of terror attacks on financial markets has become less and less dramatic in recent years, compared with the aftermath of the September 11 attacks.
Economies and markets tend to adjust and desensitise to terrorism over time. The unfortunate reality is that terrorism has become more ‘commonplace’ in the minds of regular folk after 9/11. Certainly, tourism-related stocks such as airline and hotel counters would be adversely affected in the near term, until travellers adjust and get back to the norm. Asia may be more resilient today, where cautious trading should prevail.
Yesterday: S&P 500 -0.1%; DJIA -0.2%; DAX +0.4%; FTSE +0.1%; BEL All share +03%
In Singapore, airline, financial and telecommunications stocks were under pressure yesterday, as a result of the attacks. Singapore Airlines dropped -1.1%, while DBS and UOB fell -1.3% and -0.6% respectively. Several industries are typically more vulnerable to terrorism activity. The obvious industry being the tourism sector. Where public confidence in air travel is regularly hurt by terror attacks.
Bank and Exchange stocks may also be susceptible to downward pressure. Investors may be concerned if terror activity will cripple the financial infrastructure, such as internet and telecommunications, or leading to a closure of the nation’s exchange. Singtel was the worst performer on the Straits Times Index (STI) on Tuesday, falling -2.2%.
However, the STI was cushioned by gains in other sectors such as consumer staples, and ended near flat on Tuesday.
Sterling drops on heightened Brexit risks
The Brussels attacks have lent support to pro-Brexit proponents that migration leaves Britain vulnerable to terror activity. The perceived increase in Brexit risks dragged GBP down over 1%. The exchange rate is an immediate victim of the debate over Britain’s membership in the European Union.
The uncertainty over the impact of a Brexit scenario meant that investors tend to de-risk through the holdings of GBP assets, which include the currency. GBP has fallen -3.5% year-to-date on heightened Brexit risks, and the future path depends significantly on how the debate pans out in the coming months ahead of the 23 June referendum. Needless to say, an inclination towards leaving the EU will probably see more downward room for GBP.
*You may wish to follow me on twitter at https://twitter.com/BernardAw_IG