Even though the stock exchanges are not unified, the global economies are tied together. Trade, joint plans, treaties, infrastructure support, politics, warfare, and so many other reasons affect the fate of stock prices due to global events. These global events can be wars, recessions, bursts of the bubble in a particular industry, supply chain issues, pandemics, or something even more catastrophic.
Sometimes, they can be a knee-jerk reaction to something; sometimes, they are set in stone due to multiple events that affect it. One of the reasons why stocks and their prices get affected is because a company may have its entity or trading partners in another country or is dependent on resources from other countries. A change in that region or company’s situation has a domino effect on the stocks that you have invested in. Taking caution and saving your capital are a few of the options you have. Let us discuss how global events affect the prices of stocks:
- Inflation:
Inflation silently eats away at your purchasing capacity. It reduces your ability to get the most value out of your money. As a result, your investments decrease, which can also lead to a change in a company’s cash flows. This significantly affects the prices of stocks over a long period of time.
- Pandemic:
When the Covid-19 pandemic hit, most of the world came to a standstill. It led to significant supply chain issues, a shortage of important raw materials and overall global trade. Multiple stocks across various exchanges saw a stupendous collapse. It took quite some time for the economy to recover.
- Natural Calamities:
Natural disasters can uproot life as we know it. There are financial, infrastructural and human losses, all of which have a severe effect on the stock market. Hence, as a basic measure, most countries do not solely or primarily rely on a single partner for their import needs.
- Wars and trade wars:
Wars have no good outcome for anyone who is linked even slightly. They strain geopolitical relationships and even cause supply chain issues. Trade tensions between India and China, especially in the context of border disputes and subsequent bans on Chinese apps and products in India, have affected many Indian companies and sectors, influencing stock prices, especially in technology, telecommunications, and import-dependent industries.
- Economic factors:
When a financial bubble bursts, it causes a recession. The 2007–2008 financial crisis is proof of that for those who remember it. Such a wide-scale chain of events definitely impacts the stock market.
In such times, most investors need to play cautiously. Only some people have the appetite to stay through the storms, but the idea is to protect your wealth from eroding. Many move their investments to fixed deposits, debt investments, government bonds and other similar options, while others invest in fundamentally strong companies that are less likely to get caught in the turmoil.
Conclusion
Global events like wars, pandemics, and economic shifts deeply impact stock prices. These events can disrupt supply chains, affect trade, and alter economic stability, leading to significant changes in stock markets. Countries and companies interconnected globally feel these effects strongly, causing fluctuations in investment values. Investors must be cautious and consider diverse investment strategies to protect their capital against such unpredictable changes.