For decades, geopolitical flare‑ups reliably rattled global markets. A coup, a missile test, a diplomatic rupture, an oil embargo or even the capture of a ‘sovereign state leader’ — any of these could send indices tumbling.
Yet today, even as governments threaten military action, regimes collapse, and global alliances wobble, equity markets barely blink. The question is no longer why markets panic, but why they don’t.
So why?
Part of the answer lies in the way modern markets interpret risk. Investors have become highly selective about which geopolitical events they consider economically meaningful.
As prominent news outlets have recently reported, even dramatic developments — from the overthrow of Venezuela’s government to threats of force against Iran — have coincided with rising equity indices.
Markets are not ignoring the headlines; they are discounting their economic relevance.
This shift is reinforced by a decade of ultra‑loose monetary policy. When central banks repeatedly step in to cushion shocks, investors learn that sell‑offs are opportunities, not warnings.
The ‘central bank put’ has become a psychological anchor. Even when geopolitical tensions escalate, the expectation of policy support dampens volatility.
Another factor is the professionalisation and algorithmic nature of modern trading. Quant* models and automated strategies respond to data, not drama.
IMF research
Research from the IMF highlights that geopolitical risks are difficult to price because they are rare, ambiguous, and often short‑lived.
When the economic channel is unclear — no immediate disruption to trade, supply chains, or corporate earnings — models simply don’t react. Human traders, increasingly outnumbered, follow suit.
Desensitised
Markets have also become desensitised by repetition. The past decade has delivered a relentless stream of geopolitical shocks: trade wars, sanctions, cyberattacks, territorial disputes, and political upheavals.
Each time, markets dipped briefly and recovered quickly. This pattern has conditioned investors to assume resilience. As analysts note, markets move on expectations, not events themselves.
If the expected outcome is ‘contained’, the market response is muted.
Last point
Finally, global capital has become more concentrated in sectors insulated from geopolitical turbulence. Technology, healthcare, and consumer platforms dominate major indices.
Their earnings are less sensitive to regional conflict than the industrial and energy-heavy markets of previous eras.
None of this means geopolitics no longer matters. It means markets have raised the threshold for what counts as a genuine economic threat.
When that threshold is finally crossed — as history suggests it eventually will be — the complacency now embedded in asset prices may prove painfully expensive.
*Explainer – Quant
A quant model is essentially a mathematical engine built to understand, explain, or predict real‑world behaviour using numbers.
In finance, it’s the backbone of how analysts, traders, and risk teams turn messy market data into something structured, testable, and (ideally) predictive.
