Global shocks have been plentiful in recent years. The now somewhat forgotten Brexit, or the exit of the United Kingdom from the European Union, has proven to be a significant blow to the local capital market, one of the symbols of the British free market. The announcement of the referendum results in 2016 already caused a drop in global stock values of two trillion dollars. In terms of long-term impact, the numbers are relentless: while the market capitalization of shares listed on the London Stock Exchange peaked at 4.3 trillion dollars in 2007, it was around three trillion dollars in May last year, according to Bloomberg data.
For illustration, the value of American stocks doubled during that period, exceeding 44 trillion dollars. Liquidity has also significantly decreased – the average daily trading volume of shares of companies in the FTSE All-Share index in May last year was 3.7 billion pounds, compared to 15 billion pounds in the same period in 2007.
Significant impact
The outbreak of the coronavirus pandemic in early 2020 also drastically affected the stock markets. This is especially true for the largest global market, Wall Street, where all three leading indices plummeted more than 30 percent in just one month, from mid-February to mid-March 2020. The domestic stock market was not spared either, with the CROBEX index also weakening by 32 percent during February and March of that year. A new shock came in February 2022 when Russian tanks crossed the Ukrainian border, marking the invasion of Putin’s forces. In just ten trading days, by March 7, the CROBEX fell by 10 percent. How such geopolitical shocks affect financial markets will be the topic of the panel ‘Risk Management in the Era of Global Shocks’ as part of Lider’s Financial and Investment Forum, which will be held on June 5 and 6 at the Westin Hotel in Zagreb. The panel will feature Iva Rogović Lekić, CEO of Marsh McLennan Croatia, Saša Kramar, member of the Management Board of Spana, Petar Šimić, CEO of Primac, and Vladislav Veselica, member of the Management Board of Janafa.
Iva Rogović Lekić emphasizes that geopolitical events can have a significant impact on financial markets. – Changes in political, economic, and security conditions in certain countries or regions can cause instability in financial markets and affect the prices of stocks, currencies, commodities, and other financial instruments. Let us just remember Brexit, which caused great uncertainty in financial markets, a drop in the value of the British pound, and stock fluctuations – emphasizes Rogović Lekić.
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However, it is important to note that geopolitical events can also have a positive impact on financial markets. – For example, political changes that improve the business environment or open new market opportunities can stimulate growth and investor confidence. Therefore, it is important to monitor geopolitical trends and understand their potential impact on financial markets – says the CEO of Marsh McLennan Croatia.
Given that the core activity of Marsh McLennan is risk management, other risks that companies face in their operations, which are becoming increasingly complex, must also be mentioned.
- Join us on June 5 and 6 at the Financial and Investment Forum where you will hear more about the challenges of investing and financing development projects. The number of participants is limited, so secure your place by registering in advance.
Disaster risk
The global risk report for 2024 published by the World Economic Forum in partnership with Marsh McLennan and Zurich Insurance Group highlights a predominantly negative outlook for the world in the next two years. According to the report, the majority of respondents (54 percent) expect some instability and moderate risk of global disasters, while another 30 percent expect even more turbulent conditions. Some of the risks mentioned in the report relate to extreme weather events, misinformation and disinformation, cyber insecurity, lack of economic opportunities, lack of natural resources, and more.
In addition to the lack of workforce, which poses a significant risk for Croatia, we are facing the following risks, says Iva Rogović Lekić. – These are economic risks – that is, the Croatian economy is sensitive to external shocks, such as changes in global economic conditions, trade disruptions, or fluctuations in tourism demand. It is also worth mentioning extreme weather conditions. Croatia, like other countries, is susceptible to the impacts of climate change and natural disasters (such as earthquakes, floods, fires, etc.) that can affect agriculture, tourism, and infrastructure and can disrupt economic activities and pose risks to human lives.
Furthermore, political stability is crucial for the development of any country. Croatia faces challenges related to political polarization and the need for structural reforms. These factors can affect investor confidence and economic growth. Finally, Croatia’s position in the region exposes it to geopolitical risks. Tensions between neighboring countries or changes in regional dynamics can have implications for Croatia’s stability and security – says Rogović Lekić.
Trends affecting Croatia
Specifically, regarding Europe and Croatia, she would highlight an additional super election year, a macro transition that will be subject to disruption, and activities related to climate change and energy transition. – These trends will affect credit risks in Europe and Croatia in the following ways: EU-level climate policies may increase the prices of certain products, weak growth in key export markets may affect industrial growth; Croatia has three elections in 2024, which complicates fiscal discipline; migration flows driven by climate change and insecurity are likely to remain strong; the development of the war in Ukraine may increase insecurity in Eastern Europe; an extended conflict in the Middle East would further disrupt energy and commodity trade – emphasizes Rogović Lekić. For all the reasons mentioned, risk management is more important for companies today than ever, in order to protect their business from unforeseen events and ensure sustainability.
