Financial markets are underpricing the risks of escalating geopolitical conflict, a dangerous “disconnect” that could trigger significant sell-offs similar to the stock market panic seen in August, the International Monetary Fund has warned.
In its latest assessment of global financial stability risks, the IMF said the relationship between market volatility and geopolitical risk was at its lowest in more than a decade, with investors becoming complacent about the threat to asset prices from military and diplomatic conflicts around the world.
Tobias Adrian, the IMF’s financial counsellor, said “asset prices may not fully reflect the potential impact of wars and trade disputes”.
He added: “Such a disconnect makes shocks more likely because high geopolitical tension could trigger sudden sell-offs in financial markets and
