REPOST: Will geopolitical tensions derail markets?

Global equity markets had been bouncing back from early April’s lows as investors shifted their attention to the still relatively strong world growth outlook bolstered by favourable economic tailwinds such as the US corporate tax cut and rising employment.

However, the markets are now slumping again as new geopolitical risks emerge. Disruptive counterforces, including an escalating trade war, political showdowns in Europe and currency devaluations in Latin America are beginning to work against the synchronised global growth scenario which appeared to be in intact earlier this year.

The major averages are up slightly on the year, but that masks considerable variance between regions and sectors. For example, the tech-heavy Nasdaq market is up 9.5 per cent year-to-date, easily outperforming the broader S&P 500 stock index which has advanced by just 1.9 per cent as of this writing.

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Geography affects a country’s economic activities but can it determine growth?

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It’s not a coincidence that most of the highest-earning countries with progressive economies come from regions ideally located on the Temperate Zone. The US, Canada, Australia, Japan, and Europe dominate the world when it comes to economic development.

Indeed, the climate of a particular country and where they are located on the globe may have a huge impact on their income levels. This is because other aspects related to a country’s geography such as transport costs, productivity, availability of specific natural resources and raw materials, accessibility to major distribution hubs, the burden of diseases, political stability, also come into play – and the same aspects make underdeveloped countries located in geographically disadvantaged setting, less competitive.

While geographical factors can easily determine economic growth and the types of economic activities that countries take part in, experts argue that these are not constant determinants of economic performance. A country, despite its geographic disadvantages, can still push progress forward by focusing on the resources available to them.

Middle Eastern countries, despite in the middle of a desert and experiencing dry and hot climate follow a similar reality. The abundance in petroleum fields and the richness in natural gases necessary to sustain the international industrial life force make these nations competitive players in the global economic stage.

Developing countries as well as developed countries in Asia, on the other hand, despite being set in regions bombarded by different environmental hazards such as earthquakes and typhoons, have their own resources that have helped them stand out, and one of the most important is this: knowledge in technology. Meanwhile, tiny countries and territories such as Asian Tiger Singapore, leading offshore financial center Bermuda, and Mediterranean island-nation Malta all have very little resources yet were able to succeed and become significant global players.

A skilled and educated population can be a huge asset to their workforce. The creation of globally competitive human resources can topple down even the most stubborn obstacles that connects geography and economic development.