Trade Wars: IMF Warns of Stock Market Collapse Threat.
The International Monetary Fund warns that significant geopolitical risk events may lead to a considerable decline in stock prices and threaten financial stability. The IMF report does not specify particular events, such as tariffs, but notes that risks have increased since 2022 due to wars, military spending, and trade restrictions.
The International Monetary Fund urges financial institutions to ensure sufficient capital and liquidity to overcome risks. The use of stress tests and other forms of analysis is also recommended for risk management.
According to IMF research, significant risk events lead to a loss in stock prices averaging 1% monthly across all countries. In developing countries, this decline is 2.5%. The most significant risk events include international military conflicts, particularly Russia's invasion of Ukraine in 2022. In such cases, stock returns decline by 5% monthly, which is twice the level of other geopolitical risks.
The rise in geopolitical risks also leads to an increase in credit derivatives prices that protect against defaults, and these risks may spread to other economies through trade and financial connections.
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