India-Pakistan tensions hit global markets as investors weigh risks
Global shares fell yesterday, led by stock markets in India and Pakistan as tensions between the two countries intensified.
Yesterday, Islamabad said it had shot down two Indian military jets a day after Delhi said its warplanes had struck inside Pakistan.
Tensions have been elevated since a suicide car bombing by Pakistan-based militants in India-controlled Kashmir killed at least 40 Indian paramilitary police on February 14.
The latest actions sparked fears of escalation.
"Markets will remain volatile till these geopolitical tensions subside," said Neeraj Dewan, director at Quantum Securities.
The pan-European STOXX 600 was down 0.5pc with most regional indexes in the red, while US stock futures for the S&P 500 and the Nasdaq were both down 0.2pc ahead of the US market open.
India and Pakistan both said they shot down each other's fighter jets yesterday, a day after Indian warplanes struck inside Pakistan for the first time since a 1971 war, prompting world powers to urge restraint.
India's and Pakistan's bonds and currencies fell and MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.13pc as the threat of conflict between the nuclear-armed neighbours grew.
Foreign investors will be more concerned with the developments, market sources said, which could prompt some trimming of their bond and currency positions.
"There is clearly an escalation of tension between India and Pakistan. It is best to sell and be light as uncertainties are way too many," said a senior bond trader.
"This adds another layer of risks for investors," said Charles St-Arnaud, of Lombard Odier.
The heightened geopolitical risks helped assets considered safer than stocks, such as the Japanese yen or the Swiss franc, which gained against the dollar.
"The yen is the pick of the major currencies as tensions flare between India and Pakistan and as the bullish global risk mood sours," said Societe Generale strategist Kit Juckes, though he noted the market moves remained limited for now.
The dollar itself hovered around three-week lows after Federal Reserve Chairman Jerome Powell reiterated on Tuesday the Fed had shifted to a more "patient" policy approach regarding changes to interest rates.
"We didn't learn much new," Mr St-Arnaud said, adding that the new dovish stance of US monetary policy had not weakened the dollar much, notably against the euro.