Gossip, rumor and news. They are the fuel upon which the financial world thrives. And the murkier the details the more you can expect a market to give a knee-jerk reaction which may seem quite out of context within a few hours.
So when North Korea detonated a nuclear test deep underground we were off to the races. South Korea saw the first market reaction because it is of course the country closest and most immediately affected. The Kospi index dropped six per cent. The ripples spread across to Japan (after all, Tokyo is just 1300 kilometers from Pyongyang) and the Yen took a bit of a battering. Across continents the financial shockwaves reached London and New York where currency and bond markets gave a brief shudder.
There was nothing unusual in all of this fast-paced, adrenalin-pumped trading action. It was only many hours later, when calmer minds had analyzed the facts and put it into proper perspective, those initial market movements were largely reversed and we carried on as before. Those traders lucky enough to be “ahead of the curve made good; those behind the market licked their wounds.
It all had me once again marveling at the way in which global markets are really one giant spider’s web, where you pull on one bit and the other side wobbles. This is all the more interesting because those involved in making decisions know little, and care less, about the countries they are playing with. I have no doubt few of those traders will ever visit South Korea, let alone the isolated state in the north, yet in dealing rooms across the globe people were moving billions on the back of their hunches and fears.
I have often been slightly horrified at the way so much money rides on so little fact. But the truth is it happens every day. Whether it is an explosion underground in Asia, a car company going bust in the US or a government in trouble in Europe, traders on every continent want to be ahead of the curve not behind it.
Readers familiar with the markets may well be tearing their hair out at my seeming naiveté. After all, what I am describing is the normal course of events in the financial world. Surely Richard, you shriek, after a quarter of a century in the financial world you understand THAT much?
Yes I do. But I never fail to be amazed by it. I am a simple chap at heart. So in the week ahead, whenever I hear of some gossip, rumor or news about an event on the other side of the world, I will wonder who is using it to their advantage, and what it means for me.
Richard Questis a CNN anchor and correspondent who reports on business travel issues. Tune in to CNN International each weekday at 9 pm to catch Richard’s show, “Quest Means Business.