In the world of modern finance, everything is interconnected. A war in a foreign country could inflate the price of oil, which might drive up the operating costs of domestic manufacturers (and therefore the prices paid by consumers of domestic goods). A change in the Bank of England’s base rate might drive up consumer spending – and potentially inflation.
If you’re making investments, it pays to consider how the broader economic picture might influence the returns you eventually receive.
Understanding Market Sensitivity to News
Some markets are notoriously fickle, and likely to respond to surprise events. For example, when deciding on what the price of a given commodity will be in the future, investors might make a number of assumptions about what the state of the world might be. When those assumptions are proven faulty, the prices in question might need to be revised. For example, it is largely expected that the Chancellor of the Exchequer will seek additional tax rises in the Autumn Budget. But if she tries to find the money through borrowing, instead, this will undoubtedly have knock-on consequences for the price of government bonds.
Real-World Examples of Market Movement
We can also look to past events for examples of markets being taken by surprise. For example, before the Brexit referendum in 2016, the markets expected that the UK would decide to remain in the EU. When the early results came in from Sunderland, showing a sizeable turnout for leave, the value of sterling plummeted. Then, when markets opened, the FTSE 100 experienced its largest one-day slump since the financial crisis in 2008.
In some cases, the changes effected by world events can be felt by particular industries. For example, in the wake of the COVID-19 pandemic, tech companies, including teleconferencing platforms, experienced explosive growth.
The Role of Online Investment Trading Platforms
Thanks to online trading platforms, it’s easier than ever before to seek out great deals, and to react quickly to world events. Of course, to get the best from these platforms, you’ll need the right financial education. This is where courses in online investment can be so worthwhile!
Adjusting Your Portfolio in Volatile Times
The best way to weather geopolitical storms is through hedging. Make sure that you consider the risk and reward of each investment, and make ‘what if’ plans for certain unlikely, though consequential, events. Make sure that your holdings are suitably diversified, too; that way, you won’t have all of your eggs in a single basket.