Terrorism affects markets no more than natural disasters

Markets, it seems, are human too. Even those who handle massive amounts of money, either their own or their clients’, are influenced by weighty events just like everyone else. Thursday’s terrorist attacks in London were bound to create unrest and tension, expressed by a sudden drop in shares across European stock markets. Even so, the very next day shares started to rebound in morning trading across the major European bourses. The London bombings will have little impact on the growth of the economy and of corporate profits, the latest assessments suggest. Even the transport and travel company sector, with shares in companies like British Airways and Accor in France, which had suffered the strongest pressures, moved upward on Friday. It appears that the markets are getting used to the idea that terrorism, no matter how sensationally it is manifested, does not have a decisive impact on financial life. It may create pain for the victims, but the ripple effect through the markets is limited. This conclusion may seem cold-hearted, as it shows how inured we are to the idea of attacks against unsuspecting civilians, but it is also realistic. Equally realistic has to be investors’ behavior; they must not be led into taking important decisions hastily and under the pressure of dramatic events. There certainly are effects on currency markets, but they are also affected by other factors. The slide of the British pound vis-a-vis the other major currencies may have been accelerated by the bombings, but it is probably more due to the possibility of an interest rate cut or the strengthening of other currencies. The possibility of other acts of terrorism is now acknowledged as part of everyday life in most developed countries, with all the consequences this may entail. It does not dictate the course of markets, but as an extraordinary event it does have some impact, just like a natural disaster.

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