War is one of the most terrifying things in the world. The effect of war is evident on all sectors in all the participating countries. However, it would be interesting to explore the impact of war on the share market from a purely economic standpoint.
Effects of War on the Share Market
The effects of war can be very different on different countries depending upon factors like the duration of war, the economic condition of the country, and so on! To understand the impact of war, it is necessary to understand how a country’s economy would work under the conditions of war. Most countries have deep pocketed defence budgets. However, during a war, this budget
would need faster replenishment. Hence, the economic activity would spur in the defence sector more than others. Countries typically experience high GDPs during such times. The share market takes the increased GDP as a positive sign and the market experiences a rise.
In several economies, however, different scenarios have been experienced. When wars impact a nation, the economy takes a huge hit. When World War I happened, stock markets were shut down for four months. American stock market took two years to get back to an industrial average of 80 percent. As far as wars are concerned, companies that are most likely to benefit
include the ones that sell arsenal and armoury.
Shorter Wars & Stock Market
Short wars have limited impact on a country’s share market. Even if the country experiences losses in the stock market, the market typically recovers in two to three weeks’ time. Furthermore, if a country is not participating aggressively in the war, the effect that would be seen would also not be so heavy as to disrupt the whole market. As learnt from the two World
Wars that took place, European economies took major hits as they were a part of the ongoing war whereas the American economy was affected very less by the same as it only supplied men and arms to the battlefield.
To maintain the economic strength and stability, avoiding war as much as possible is the best way for all political leaders. The added benefit of avoiding war would be world peace, booming economy and increased quality of life!