Bin Laden death has little long-term impact

By Vikram Barhat | May 2, 2011 | Last updated on May 2, 2011
3 min read

Canadians equity market came alive this morning as the nation woke up to the news of Osama bin Laden’s assassination in a dusty little town in faraway Pakistan.

But for financial experts and economists in Canada, and across the world, the news amounts to little more than small ripples in a very large ocean, unleashing a tidal wave of indifference.

An investment market is a mosaic frame on the wall with many data points in it and the death of al-Qaeda leader bin Laden, only a little pixel, is relatively insignificant in the greater scheme of things, said Paul Taylor, chief investment officer, BMO Harris Private Banking.

“This really doesn’t drive markets,” he said. “Markets are driven by supply-demand imbalances and by far the biggest issue for the Canadian equity market is the heath of the Chinese economy, the health of the U.S. economy, because we are such an open economy we rely on world demand-supply balances to determine commodities prices, and we do export a lot to the U.S., so those are going to be what drives the Canadian market intermediate to longer term.”

Taylor, though, attributed positive numbers on the screen this morning – the spike in oil, gold and the U.S. dollar – somewhat to market’s emotional reaction to the news. “It is certainly an historic moment, and markets are reacting to it in a fashion that reflects a lot of U.S. patriotism through our stock prices.”

Is this the end or could it escalate to a fierce retaliatory response to the U.S. forces’ actions? Taylor doesn’t think it could. “The security counter to the threat like this is so much stronger that I wouldn’t expect to see a major reaction to this; I think this is the end rather than the beginning.”

Other geopolitical issues such as regimen change and the spread of unrest in the Middle East and North Africa are of greater significance and are likely to have lasting market implications, he said.

Some experts are arguing the news of bin Laden’s death would help lower the risk premium attached to the Middle East and North Africa to the extent that part of the geopolitical risk is said to be supported by al-Qaeda.

Taylor certainly has his doubts. “The two events are meaningfully unrelated, the only connection is that in certain geographies there are elements that are sympathetic to al-Qaeda that will be particularly belligerent, but whether their anger will be directed towards a regime that might be seen to be supportive of the U.S. actions remains to be seen.”

Taylor recommends that investors keep an eye on the fundamentals in China and the U.S. and the recovery of the Canadian economy which is still coming out of the great recession. “The U.S. economy is expanding, China’s soft landing [are the indicators] that drive equity markets.”

The focus of the oil market, at least for now, seems to be on whether the death of bin Laden would help unwind the risk premium attached to prices, but economists around the world feel certain it is unlikely that any violent response from what remains of al-Qaeda, and its offshoots, would succeed in disrupting oil supplies.

Vikram Barhat