Paris terror unlikely to be a market event

With more than one hundred people dead and many more injured, last Friday’s terror attacks in Paris rank among the deadliest in the developed world.

Once again, it has been proved that in a global world links between regions do not stop at trade. Across the south-east of Europe lies a region of conflict, which Europe’s electorate and political classes have so far preferred to largely ignore. At least until the flow of refugees from Syria turned into a flood, Europe was preoccupied with its internal problems, such as the integrity of the eurozone and slow growth. The willingness of the world’s major powers (France and Germany included) to allow a nation on Europe’s borders such as Syria to turn into a failed state ravaged by a multi-year civil war would now seem to be a large mistake.

However, from an investment perspective, investors could not fail to have been aware of the pressure building in Syria and the increased risk of events such as these. The attack in Turkey in October also resulted in the loss of more than one hundred civilian lives. Therefore, we would not expect a major market reaction. Experience from previous terror attacks on Western targets shows that any impact on economic activity is likely to be transient. Large cities have consistently demonstrated a remarkable ability to recover from terrorist atrocities.

We note the increased determination overnight to attempt to resolve the situation in Syria and equally importantly resolve the US-Russian disagreements on how this should be achieved. In this regard, the face-to-face meeting between Obama and Putin at the G20 meeting yesterday, which resulted in an agreement to push for a Syria-led political transition and ceasefire, may be more significant than the overnight step-up in the aerial bombing campaign.

In terms of our view that this is a political rather than market event, we would also highlight that markets are now assuming that progress will be made in Syria in restoring peace. Otherwise the European refugee crisis will become increasingly acute and could easily have many other knock-on effects in terms of European politics and the European project.