War risks weigh on markets, crypto

A prolonged Middle East conflict could weigh heavily on global financial markets, triggering a broad risk-off environment that pressures equities and cryptocurrencies while increasing volatility across asset classes.

- NUNTAWUN POLKUAMDEE

Analysts warn if the conflict intensifies or spreads beyond the region, the Thai bourse could face significant downside risks, with the Stock Exchange of Thailand (SET) index potentially falling towards 1,200 points in a worst-case scenario.

According to DBS Vickers Securities (Thailand), geopolitical crises typically affect equity markets through three main channels: a rising equity risk premium, disruptions to global energy supply and currency volatility.

As uncertainty increases, investors tend to reduce exposure to risk assets, the brokerage noted.

DBS outlined three potential scenarios for the SET. In a base case, if the conflict is contained and ends within 4-6 weeks, the bourse could fall by up to 8% but remain above 1,400 points.

In a bear case, if the war extends beyond six weeks but remains limited to the Middle East, the index could decline by 9-14%, sliding to the low 1,300 range, noted the brokerage.

However, in a worst-case scenario, where the conflict becomes prolonged and spreads beyond the region, the index could plunge 15-20%, potentially dropping to around 1,200 points, said DBS.

STRESS TEST

Beyond market volatility, an extended conflict could put additional strain on US public finances. A large military campaign similar to the Iraq war could cost the US as much as US$2.9 trillion, adding to already record-high public debt levels.