Tuesday, January 18, 2022

How do political developments in Afghanistan affect the performance of markets?

Investors add the evolving situation in Afghanistan to the list of global issues to watch. Although strategists do not expect an immediate impact on the markets after the Taliban effectively take control of Afghanistan, they do point to long-term scenarios, such as the possibility that Afghanistan will once again become a breeding ground for international terrorist attacks. other.

The militant group’s rapid advance into the void left by the withdrawal of US forces and NATO are also pressing President Joe Biden, who said only last month that there was little chance of the Taliban overrunning the country.

The concern is growing about the situation in Congress, where Biden is already facing hurdles from some lawmakers to enact his more than $4 trillion economic agenda.

Stocks fell on Monday, while the dollar rose on fears that the delta shifter is slowing the recovery from the pandemic, with the latest wave of geopolitical tension adding to the cautious mood.

TOPSHOT – Taliban fighters stand on a vehicle along the roadside in Kandahar on August 13, 2021. (Photo by – / AFP) (Photo by -/AFP via Getty Images)

great power image
The collapse in Afghanistan raises questions about the United States and its role in the world, according to Louis Vincent Gave, CEO of Gavekal Capital. He wrote in a memo that if it were like the “Suez moment” of 1956 – a reference to the crisis that marked the decline of Great Britain as a world power – there could be far-reaching repercussions.

If the days of the single superpower world are over, the fall of Kabul will be “downward for the dollar and US Treasury bonds, as well as bearish for the countries that derive their strength from the US security umbrella.”

Conversely, the Chinese bond market and the renminbi will be bullish, as China is the rising power in Asia.

It will be bullish for the ruble and the bond market in Russia, Gav added. Oil will also benefit, given the potential for escalating tensions in the Middle East. It will be bullish for gold, as it is the anti-fragile asset in times of geostrategic struggle.

U.S. President Joe Biden speaks in the State Dining Room of the White House in Washington, D.C., on Tuesday, March 23, 2021. Biden urged the Senate to pass a law requiring background checks for gun purchases a day after a shooting at a crowded Colorado supermarket killed 10 people, including a police officer. Photographer: Stefani Reynolds/CNP/Bloomberg via Getty Images

pressure on Biden
“It may be a loss of face for President Biden, but then again, Trump has been down the same path,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital. “What happened increases pressure on Biden’s effort to get as much of his spending program through, to help take the focus off Afghanistan,” Oliver added.

local politics
The key question in Afghanistan is poor implementation and what it reveals about the flawed decision-making process in the White House, according to Sebastian Galley, chief macroeconomic analyst at Nordea Investment Funds. Meanwhile, he said, “Democrats will continue to rally around the president until this crisis is not an issue of domestic policy.”

Terror fears
Ilya Spivak, head of Asia Greater at DailyFX, said Afghanistan’s connections to the broader markets are rather small. “The effect will be there when the region becomes a springboard for terrorism again,” he said. Spivak added that investors are likely to be reluctant to trade heavily because of this “unless something new happens in this regard.”

limited attendance
The limited presence of international companies in Afghanistan necessarily limits their broader impact on the markets, said Jeffrey Haley, senior market analyst at OANDA Asia Pacific. “I seriously doubt that any of the big companies have any large-scale operations there,” he said. “Unfortunately, the biggest exports from Afghanistan will be human beings,” he added.

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