Washington (Reuters) – Major geopolitical events, which include an increase in trade tensions, can trigger significant stock market corrections, explains the International Monetary Fund (IMF) on Monday in a chapter from its report on global financial stability.
These corrections can then generate market volatility which can risk financial stability at risk.
The IMF does not mention any specific event but is based on a risk measure built from the analysis of press articles to affirm that conflicts, wars, terrorist attacks, military expenditure and commercial restrictions have significantly increased since 2022.
In an article accompanying the publication of the chapter, the IMF enjoins financial institutions to have enough capital and liquidity to deal with possible losses linked to geopolitical risks, also encouraging financial actors to identify such risks thanks to resistance tests.
In its report, the IMF adds that major events such as wars, diplomatic tensions or acts of terrorism make the share of the shares of a percentage point on average over a month for all countries, an impact that rises to 2.5 percentage points for emerging countries.
International armed conflicts, such as the Russian invasion of Ukraine in 2022, constitute the largest risks, reducing stock yields of five percentage points over an average month.
In his blog, the institution also calculates that the impact of Sino-American trade tensions had made the actions of the two countries back down.
The IMF also said that economic uncertainty made shocks more likely and unexpected on the wallets.
The higher geopolitical risks also increase the debt of states and could be transmitted to other economies through the channels of trade or financial interdependencies, adds the institution.
The IMF will publish all of its report on April 21, on the occasion of its spring meeting with the World Bank, a meeting which should be marked by the announcements of Donald Trump concerning the establishment of reciprocal customs duties.
Since the inauguration of Donald Trump, the S&P 500 has lost more than 10% and has displayed high volatility, while gold has reached a record.
(Written by Andrea Shalal, Corentin Chappron, edited by Augustin Turpin)
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