What a third world war would mean for investors

EUROPE had been moving towards the slaughterhouse for years, and by 1914 a conflict was all but inevitable – that, at least, is the argument often made in hindsight. Yet at the time, as historian Niall Ferguson noted in a paper published in 2008, it did not feel that way to investors.

For them, the first world war came as a shock. Until the week before it erupted, prices in the bond, currency and money markets barely budged. Then all hell broke loose. “The City has seen in a flash the meaning of war,” wrote this newspaper on Aug 1, 1914.

Could financial markets once again be underpricing the risk of a global conflict? In the nightmare scenario, the descent into a third world war began two years ago, as Russian troops massed on the Ukrainian border. Today Israel’s battle against Hamas has the frightening potential to spill across its borders.