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Syria Civil War: Effect on Global Investments

17 April 2018Politics
Syria Civil War: Effect on Global Investments - Market Insights by Citibank UK

New headlines roiled markets with S&P down 0.29% and Asia down 0.24% Friday, only a day after Chinese and US officials calmed fears of an impending trade war. Following reports of new chemical weapons attacks on Syrian civilians, the US, UK and France have launched more than 100 missiles against what they say were Syrian chemical weapons facilities in response to a chemical weapons attack in a Damascus suburb a week ago.*

The Pentagon said the strikes involved planes and ship-launched missiles and identified three targets: a scientific research center in Damascus, a chemical weapons storage facility west of Homs, and another storage site and command post nearby.**

Looking back at history, Citi analysts observe that when Russia occupied Crimea and consequently was sanctioned by EU and US in late 2014, global equities sold off 8% over one month, but recovered in the next month. Citi analysts believe this current episode is similarly contained in foreign exchange markets. When the RUB weakened to 70-80 in 2015-16, there were two episodes of global panic driven by CNY devaluation, oil wealth retreat and deflation fears. These are simply not the case now.

Citi analysts note that the recent pullback took place after the 12th longest period without a correction in the US (522 trading days since 2016). Globally, the current correction started 541 days after the previous correction, the 6th longest period since 1970. Citi analysts also reiterate that military conflicts' impact on markets tends to be very short-lived unless economic performance is severely impacted (historically rare).

Syria Civil War: Effect on Global Equity and Forex Market - Market Insights by Citibank UK

While it appears that new risks have been coming on rather suddenly this year, Citi analysts believe underlying economic performance in most world economies are still likely to be robust. In the US, Citi analysts expect EPS gains of more than 20% in the upcoming corporate earnings season.

*Reuters, 12.04.2018
** The Guardian, 14.04.2018

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