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IMF warns global markets may be overlooking geopolitical risks

ended 22. October 2024

The International Monetary Fund (IMF) has stated that while near-term global financial risks appear manageable, easing monetary policy could lead to asset price bubbles. They cautioned that markets might be underestimating the threats posed by military conflicts and upcoming elections.

In its latest semi-annual Global Financial Stability Report, the IMF highlighted a troubling "widening disconnect" between heightened geopolitical uncertainty and low market volatility. This situation raises the likelihood of a market shock similar to the turbulence experienced in August, when a rate hike by the Bank of Japan triggered significant de-leveraging.

Newspage asked experts for their thoughts, which will appear below until 18:00 GMT.

3 responses from the Newspage community

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Guy Myles
CEO at Flying Colours
We acknowledge that geopolitical risk is a permanent possibility. However, it is evident that markets are currently pricing in a “no landing” scenario without anticipating significant shocks to the financial system. Additionally, the potential escalation in the Middle East is not yet apparent in the market, particularly when looking at the oil market. Furthermore, any disruption of supply chains is not currently reflected as a market concern. While we should not be overly focused on geopolitical risk at the expense of missing economic growth, we prioritise building resilient portfolios designed to perform well in all weather conditions rather than attempting to time geopolitical risks.
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Gabriel McKeown
Head of Macroeconomics at Sad Rabbit - Substack Newsletter
With financial markets seemly ignoring brewing geopolitical storm clouds, the International Monetary Fund (IMF) has sounded a clarion call for vigilance. This latest report paints a picture of a market caught in a dangerous dance between complacency and catastrophe, with investors either oblivious, or blissfully ignorant to the escalating military conflicts and electoral uncertainty. While near-term global financial risks appear manageable, easing of monetary policy could be inflating asset bubbles, setting the stage for a potentially dramatic market correction. This combined with the heightened geopolitical uncertainty and unusually low market volatility, is creating a tinderbox that could ignite with the slightest spark. Adding to the precarious economic balance is the IMF’s prediction that global public debt will exceed $100 trillion by the end of this year. For investors, in a world where the only certainty is uncertainty, complacency could be the financial markets’ greatest enemy.
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Faisal Sheikh
Managing Director at Monmouth Capital
No surprise at all that the IMF Stability Report is worried about, well, market stability. Of course, unlike real investors, the authors don't have the problem of what to do about these concerns. Every generation thinks it lives in uniquely risky and uncertain times. We are quick to forget history and we overweight the present and near future. If we look back at previous periods of geopolitical turmoil, it’s not clear that there’s a useful link between events and asset prices – certainly not a reliable one. The exceptions are stark: if you had all your money in Russia in 1919 or China in 1950, for example, you would have lost everything. In fact, in 2020 the world did experience something truly exceptional: a once-in-a-century pandemic. Markets sold off savagely – but anyone that pulled their money out is probably still regretting it.