Investors should not make the mistake of thinking that markets will react to a new increase in geopolitical tensions in the same way they are reacting now, said Christian Sewing, CEO of Deutsche Bank.
Speaking at the Global Financial Leaders’ Investment Summit in Hong Kong, the veteran banker warned investors against complacency as he argued that another incident that sours international relations could quickly lead to a major market event.
The German CEO warned that further clashes between state powers could quickly cause markets to lose their cool. He said it should not be taken for granted that markets will remain as resilient in the face of conflict as they are today.
“My biggest fear is that there will be another geopolitical escalation, and that could happen quite quickly, and at some point the markets will lose their cool, and then you’ll have a market event,” Sewing said.
Deutsche Bank DBK,
For his part, the CEO said market participants should remain alert to the risks of geopolitical conflict, while cautioning investors against wrongly believing that markets will remain untouched.
“We all need to stay very vigilant when it comes to risk appetite and stress testing, and just not make the mistake of simply thinking that the markets will remain as calm as they are now,” Sewing said.
The bank executive’s comments come as global markets have remained relatively quiet following Hamas’ attack on Israel on October 7 and Israel’s subsequent assault on Gaza in recent weeks.
Stock markets have also reacted relatively muted to the war in Ukraine over the past year. Oil futures CL00,
traded below $80 a barrel on Tuesday.
Research published in the International Review of Financial Analysis found that the response to Russia’s invasion of Ukraine was significantly less than the market’s response following COVID-19 and the 2008 crash.
Speaking after sewing, Morgan Stanley MS,
CEO James Gorman said he also believes a political or geopolitical event is likely to be the cause of the next market crash, warning of growing threats to democracy around the world.
“I don’t know what the reason is. I mean, no one in this room, I don’t think, predicted COVID. It will probably be a geopolitical/political thing,” he said. “The challenges to democracy in some countries around the world are quite clear,” Gorman said.