The world was shocked last Friday when terrorists struck across Paris in a series of coordinated attacks, leaving over 120 dead. This tragedy also had a strong effect on the market—and that includes Asian financial markets. Although geographically removed from the attacks, Asia is deeply intertwined with Europe, and any sudden political shakeup in a wealthy nation like France can have effects the world over. Across Asia, those effects were immediate and negative.
Here is an overview in some of the key effects on Asian financial markets:
- The overall effect was a downturn in the market. Using the Hang Seng index as a pan-Asian snapshot, we can see that the entire region took a hit. That index fell 1.5 percent following the attacks.
- Investors were not slow to react. The drop in the market began literally as the attacks were still taking place. The largest factor is also the simplest: investors just don’t want to take a lot of risk at a time when political events have an uncertain effect on world commerce. The fact that Asian markets have already been bumpy, coupled with how closely they are linked to European capital and consumers, meant that Asian stocks were quickly sold off as a precaution.
- Unsurprisingly, airlines and the travel/tourism industry saw the biggest hit, as security concerns will ground more European vacationers. Airlines remain at a low even days after the attacks.
- China was the most resilient regional player. Although it also saw an immediate drop, various indexes saw a quick recovery of 0.5 to 0.7 percent. This won’t be the first time China’s overall appetite for growth has overcome a political shakeup, and with its vast resources and consumer base, it is less dependent on European investors.
- Japan’s drop was also steep, and was tempered only by the widespread belief that the Bank of Japan will dump stimulus money into the market.
- Not all financial vehicles are suffering. The price of gold, for example, rose following the attacks as investors sought a safer bet. Currencies also favored Asia: at the same time that Euros were sold off en masse, investors began to snap up Japanese yen.
- Other regions are by no means spared, with the US and UK taking their own share of blows.
While it’s hard to make predictions at this point, many analysts suspect the hit to the Asian market will be temporary. While France itself will face longer term instability, much of Asia is already seeing a bounce back.