THE BLOG
09/09/2013 11:25 BST | Updated 05/11/2013 05:12 GMT

Syrian Tension Sees Investors Seek Safe Havens

With the spectre of a costly period of Western military intervention in both Afghanistan and Iraq still hanging over us, the prospect of another conflict in the Middle East, this time against the Syrian regime, has come too soon for many. Indeed, the British parliament has decided that the UK is not ready to involve itself in yet another US-led campaign - something which has caused many to question Britain's role in global affairs, but a decision that undoubtedly reflects national popular opinion.

The situation is serious and set to get even more difficult for the people of Syria. Not only have they had to contend with mass civilian casualties and what looks like the use of chemical weapons, but a third of the population has been forced to leave their homes with some two million now in refugee camps in neighbouring countries.

With all this tension and tragedy going on, it seems little trivial to talk about the financial impact of the situation. However, just like they always do, the world's markets have reacted to the escalating crisis in the Middle East.

When bombs drop, investor sentiment tends to follow, and the heightening of tensions around the possibility of some form of US-led intervention in Syria has increased the demand for those currencies and assets which are viewed as 'safe havens'.

Haven assets are exactly that; places where investors tend to place their funds when they believe that the world is getting a little too risky for its own good. Typically funds flow from stocks into bonds - at the end of the day bondholders are typically more likely than stockholders to be paid out in the event of a company going under - and into developed market assets as opposed to ones from emerging markets who may see far more pronounced economic issues from something like an armed conflict.

Indeed, only this afternoon at the G20 meeting in St Petersburg, members of the BRICs - Brazil, Russia, India and China - released a statement saying that strikes upon Syria would be 'extraordinarily negative' for their respective economies.

The pressure on the Federal Reserve to reduce the stimulus that is pumping into the US economy is increasing day by day as macroeconomic data continues to show that the recovery is gaining some real momentum. A conflict could easily see that momentum dwindle as trade slips, confidence falls and, although Syria is a small player globally in oil markets, see energy prices move higher.

I think Edwin Starr said it best. War, yeah, what is it good for? Absolutely nothing.