Are European stock markets more vulnerable to geopolitical shocks?

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Are European stock markets more vulnerable to geopolitical shocks?

Europe’s largest stocks have significantly greater exposure to geopolitical shocks than their US and Japanese counterparts due to their international footprint, new research shows – with Germany’s DAX facing the highest risks. Should investors be concerned?

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Photo: Getty

Market performance has not been at stake, with many European bourses delivering in a turbulent year. The German DAX hit 20,000 in early December after a run of record highs, despite the regional economic gloom. France’s CAC 40 had a strong first half of the year, before sliding down amid ECB rate cuts and political instability. The UK’s FTSE 100 also hit record highs in May and has had a total return of 11.4%, its best since 2021.

However, the US’s S&P 500 and Japan’s Nikkei 225 indices are notably more insulated from bilateral disputes and potential conflicts than those in Germany, France and the UK. This is according to research published earlier this month by risk intelligence provider Verisk Maplecroft, mapping the world’s key geopolitical risk hotspots against the global footprints of hundreds of public companies covering nearly 920,000 locations.

Without data on the key locations of companies globally, it is the complex and often opaque cross-border vulnerabilities of foreign assets that can create blind spots in portfolios
Franca Wolf, Verisk Maplecroft

Between half and three quarters of company assets in the European stock markets are located abroad, with around half of those exposed to ‘very high’ geopolitical risk, according to Verisk Maplecroft’s interstate tensions model, which measures the risk of states engaging in bilateral disputes that have the potential to result in shows of military strength or the use of force.

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