NKHUMELENI THAVHIWA: War and peace — and the markets

My earliest memory of war did not come from TV. It came from a song. I was around nine, growing up in my village in Limpopo, and our local soccer team used to sing a struggle-like chant called Gombameni. One line mentioned Saddam Hussein. At the time, I had no idea what “Gombameni” even meant. Venda is a deceptively deep language — words often carry entire histories inside them.

So I asked one of the village elders, journalist Mathatha Tsedu, what it meant. He laughed slightly and said: “Gulf. They are singing about the Gulf War.” That stayed with me.

Somehow, in a remote village in Limpopo, children were singing about a conflict reshaping oil markets and global politics half a world away — without fully understanding either.

A decade later, during my matric year, the September 11 attacks happened, followed by a war that would run for two decades. I remember writing my final exam essay on national security and the changing nature of global threats.

Looking back now, both wars followed a remarkably similar market pattern: an initial drawdown of more than 10%, intense fear and uncertainty, then recovery within months.

This is the part most commentaries get wrong. Markets price consequences, not events. War breaks out. The news cycle turns apocalyptic. Commentators reach for words like “unprecedented”. And then, almost offensively, markets don’t collapse. Sometimes they even go up. It feels wrong. It also happens to be broadly correct.

The mistake is assuming markets are in the business of reacting to events. They are not. Markets are in the business of pricing economic consequences. War only matters to the extent that it changes those. In market terms, peace is not the absence of conflict. It is the absence of consequences.

The uncomfortable truth: markets prefer bad news to unknown news. The run-up to conflict is where the real anxiety lives: rumours, threats, red lines, “sources familiar with the matter”. Investors are forced to price a wide range of outcomes. Risk premiums widen not just because things are bad, but largely because they are unclear.

Then war actually starts. And strangely, that helps. The fog lifts just enough for markets to do what they do best: assign probabilities. Contained or escalating? Short or prolonged? Energy disruption or not? Once those questions are framed, assets can be priced. The drama peaks, the uncertainty declines. Markets exhale.

A regional war makes for compelling television, yet it rarely derails global earnings. The US consumer does not stop spending because of distant conflict. Software subscriptions continue. Service economies keep servicing. Unless war disrupts something systemic — oil supply, trade routes, the financial system — the earnings engine keeps running. And while earnings run, equities tend to follow.

The historical pattern is surprisingly consistent: wars trigger sharp initial sell-offs, but recoveries usually arrive far quicker than public sentiment expects. The key distinction is whether conflict remains regional or becomes systemic.

World War 1 and World War 2 were true systemic wars that reshaped the global economic order. Most conflicts since then — from the Gulf War to the Russia-Ukraine conflict — followed a more familiar pattern: panic, repricing, stabilisation and recovery.

The September 11 attacks remain one of the clearest examples. The S&P 500 fell about 12% in the week after the attacks, only to recover within weeks. Markets, ultimately, were pricing economic damage — not sentiment.

What complicates today’s wartime market dynamic is that this conflict is unfolding alongside a profound structural shift: AI

During the first Gulf War, the S&P 500 dropped nearly 17% in the run-up before bottoming out and delivering strong gains as the conflict progressed, closing 1991 up more than 29%. The 2022 Russian invasion of Ukraine triggered an initial selloff, yet global equities stabilised within weeks and resumed their broader uptrend despite the war continuing.

The first time, everyone panics. The second time, fewer do. By the fifth or sixth iteration, investors start buying the dip before the dip has properly dipped. “Sell on war” has not been a winning strategy for some time, and that lesson is now embedded. The result is a market that falls less, recovers faster and generally refuses to behave in line with the evening news.

This entire framework rests on one fragile assumption: containment. Markets are effectively saying: this is unpleasant, but it is not systemic. Break that assumption, close a major energy artery, drag in multiple large powers, trigger a synchronised slowdown and the script changes quickly. At that point, it is no longer a geopolitical story. It is a macro one. And markets, when faced with a genuine macro deterioration, do not hesitate.

It is also worth noting that not all assets are this relaxed. Bond markets tend to be less philosophical. Wars mean deficits. Deficits mean issuance. Add a dash of inflation risk and suddenly sovereign debt looks less like a safe haven and more like a funding mechanism. Equities can look through war. Bonds have to fund it.

The conflict in the Middle East sits uncomfortably close to key energy routes and geopolitical faultlines. Markets are not ignoring that. They are simply assigning a probability, perhaps optimistically, that escalation remains contained. Hence the pattern: volatility spikes, then fades. Headlines worsen; prices stabilise. It looks like complacency. It is, in reality, conditional optimism.

Markets do not rise in wartime because war is irrelevant. They rise because, most of the time, war is economically containable. The question is whether this US-Iran war still belongs in the category of “most of the time”. The energy chokepoint is real. The tail risk is real. Markets are effectively betting that escalation remains contained, oil keeps flowing and the global economy avoids genuine macro shock.

What complicates today’s wartime market dynamic is that this conflict is unfolding alongside a profound structural shift: AI. Markets are now simultaneously pricing geopolitical risk, energy volatility and the early stages of what could be the strongest productivity cycle in decades.

The market optimism may prove correct. The geography simply offers less margin for error than markets appear willing to admit. So far, markets are doing what they have always done: climbing through a wall of very bad news — slightly awkwardly, occasionally pretending not to look down. The difference this time is that the wall is unusually close to the oil pipeline.

For now, the market’s version of peace is holding. It just happens to be holding by a thinner thread than the headlines suggest.

Thavhiwa is MD of fixed income at Ninety One