THE COMMERCE

SOCIETY
CREATIVE AND TECHNICAL ROUND

TOPIC: How Geopolitics Events cause

market crashes and recoveries.

Name: Raghav Partani

Course: B. Com. (Hons.)
Section: D
Roll No.: 23BC763
 CONTENTS

TOPICS PAGE

Meaning of Geopolitical Events 1

Impact of Russia-Ukraine War on Indian stock market 2
US-China trade war 3
Impact on FDIs 3
Other way in which Geopolitical Events impact stock market 4
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MEANING OF GEOPOLITICAL EVENTS

Geopolitical events are significant occurrences that can profoundly affect the political
relationships between regions and countries. These events stem from diverse factors,
including conflicts and wars, trade disputes, sanctions, regime changes, natural
disasters, climate change, and acts of terrorism.
Geopolitical events have the power to trigger market crashes by sowing seeds of
uncertainty, driving risk aversion among investors, and disrupting global supply
chains. These disruptions often prompt investors to divest from stocks and seek
refuge in safer assets. Additionally, they can lead to currency depreciation, compel
governments to implement policy responses, and result in fluctuations in commodity
prices—all of which reverberate through financial markets.
Conversely, market recoveries are observed when geopolitical tensions ease, instilling
renewed confidence in investors. These recoveries can be further bolstered by
proactive government policies, sector-specific dynamics, and improved global
economic prospects.
In summary, geopolitics serves as a pivotal force in shaping market sentiment,
exerting its influence over short- to long-term market trends. Understanding the
interplay between geopolitical events and financial markets is crucial for investors
and policymakers alike.
For Eg: The Russia - Ukraine war, US China Trade war, COVID-19.
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Case: Impact of Russia Ukraine War on Indian stock market.

Russia invaded Ukraine on 24th Feb,2022. Thousands of people lost their lives and many
families were forced to relocate in order to safeguard themselves. Russia has over 2,700
sanctions against itself that have frozen around $300 Billion of its gold and foreign exchange
reserve.
The spillover effect fell upon India as well. Stock markets tumbled, inflation soared to record
highs, rupee plunged against the US dollar, foreign exchange reserves took a hit. Due to
Russia-Ukraine war, India’s retail inflation jumped to 8-year high of 7.79%

Source: TOI

The reaction to the war was a fall in investor sentiment globally. Not just India, but stock
markets across the world witnessed one of their worst falls since the pandemic. The war led
to one of worst fall in BSE sensex in the last 2 years. The index crashed nearly 4,000 points in
the first 20 days of war and investors witnessed massive losses. The benchmark BSE sensex
fell below 51,000 level as the war continued. Investors became jittery and opted for safe
assets.
However, amid this crisis, Reliance’s petroleum exports increased due to the sanctions
imposed on Russia. This led to the increase in price of the stock of Reliance Industries
Limited after a slight dip.
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US-China Trade war

Effect of US China trade war on Indian stocks:-
It can have both positive and negative impacts:-
Positive impacts
 Increased demand for Indian exports from the US and other countries.
 Increased investment in India by companies that are looking to diversify their
supply chains away from china.
 Weakening of the Indian rupee, which makes Indian exports more
competitive.
Negative impacts
 Increased uncertainty and risk aversion among investors.
 Disruption of supply chains.
 Increase in the cost of raw materials and intermediate goods.

Geopolitical events also impact retail investors and FDIs

which in turn impact the stock markets.
Geopolitical events impact on FDI:-
1. Regulatory changes: changes in government policies and regulations can
either encourage or discourage FDI, depending on their nature and impact.
2. Currency Exchange Rates: currency fluctuations can impact the returns on
foreign investments and make them less attractive to investors.
3. Investment Protection: It can raise concerns about the safety and security of
foreign investments.
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Other ways in which Geopolitical events impact stock

markets:
Historical evidence has shown that during worldwide recessions triggered by
geopolitical factors, the value of the US dollar tends to appreciate. This phenomenon
can be attributed to several interconnected dynamics.
Firstly, in times of recession, domestic investors in the United States often withdraw
their funds from international markets. This is driven by a desire to protect their
investments and reduce exposure to heightened global economic risks.
Secondly, global investors also tend to exhibit risk-averse behaviour during such
periods. They withdraw their capital from stock markets worldwide and seek safer
options for their investments. Among the safe-haven assets, the US dollar and gold
are typically preferred options. The US dollar, in particular, is considered a reliable
store of value and is seen as a safe bet in times of global economic uncertainty.
As a result of these factors, increased demand for the US dollar occurs, leading to its
appreciation in value. Simultaneously, the rush towards safer assets like gold and the
US dollar can contribute to stock market downturns and, in some cases, crashes.