War in Ukraine: what explains the calm in global stock markets?

The west’s financial warfare against Russia has been dramatic. Commodity markets are chaotic, stoking already uncomfortably high inflation, and global economic growth forecasts have been marked down as a result. Many businesses face big hits from their exits from Russia.

Yet many investors and analysts have been surprised at the remarkably modest fallout for the global financial system, and the lack of broader, serious reverberations so far. After initially deepening the global stock market sell-off, the MSCI All-Country World Index has now jumped back above its prewar level, and the Vix volatility index — a proxy for how much fear there is in markets — has slipped below its long-term average, indicating a fall in anxiety.

“I’m shocked at how resilient markets have been,” says Robert Michele, the chief investment officer of JPMorgan Asset Management, the US bank’s $3tn investment arm. “I’ve been doing this for over 40 years and I don’t ever remember a time when you’ve had a shock of this magnitude without creating systemic pressure somewhere.”

Nonetheless, some experts fear that the crisis could yet produce some nasty surprises, with the financial ramifications still to be fully felt. Moreover, there are many other factors rattling the financial system at the moment: from soaring inflation, rising interest rates, under pressure technology stocks, debt problems in the developing world and the lingering coronavirus — all of which could interact with each other in dangerous and unpredictable ways to create unanticipated problems.

“It’s a little surprising that nothing has happened so far, but it’s early days,” says Richard Berner, the first director of the US Treasury’s Office of Financial Research, set up after the 2008 crisis to monitor the world for systemic risks. “There may still be vulnerabilities lurking that aren’t immediately evident, and we won’t know their nature until shocks expose them….