Investors Are Not Taking Geopolitical Risks Fully Into Account

With global markets broadly shrugging off heightening geopolitical tensions following the downing of the Malaysia Airlines flight in Ukraine, analysts are warning that investors are becoming too complacent.
After a selloff on Wall Street Thursday as news of the downing of Flight MH17 emerged, U.S. stock markets were back in business on Friday, rebounding strongly. Meanwhile, the CBOE Volatility Index (VIX) which staged its largest rally in 15 months on Thursday, fell back 17 percent on Friday to 12.06, well below historical norms.

In early morning trade on Monday, Australian and South Korean also saw gains of 0.25 percent and 0.4 percent respectively. Japan was closed for a public holiday.

“You look at the way markets went out on Friday and you’d have to say it reeks of complacency, in terms of the geopolitical landscape and how things could unfold this week, in particular how Russia responds to the mounting international outrage,” Ray Attrill, co-head of FX strategy at National Australian Bank, told CNBC’s “The Rundown” on Monday.

On Sunday, France, Britain and Germany warned Russia it could face further European Union sanctions if it did not press the separatists in Ukraine to allow unfettered access to the crash site. The pro-Russia separatists and Russian military personnel have been blamed by U.S. officials for the downing of MH17, which was en route to Kuala Lumpur from Amsterdam, killing all 298 passengers on board.

NAB’s Attrill said the ultimatum was a worrying sign: “That’s a pretty strong statement that tells you how far things could go in terms of the whole E.U.-Russian relationship.”

via CNBC

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