21 Global Watch | The shock wave of "change" in Afghanistan: the currency has plummeted by nearly 50% locally, and Pakistan and Europe may be hit by the waves

Wu Bin, a reporter at the 21st Century Business Herald, reported that as Afghanistan "changed the sky", the chaotic situation triggered financial market turmoil. Afghani has embarked on a plunge pattern, and risk aversion in global markets has also heated up.

On August 16, EST, although U.S. stocks continued to hit record highs, the bond market has attracted some safe-haven buying. Global geopolitical risks may have fueled demand for safe-haven U.S. Treasuries, with the 10-year Yield falling to 1.223% on the 16th, a one-and-a-half-week low.

But overall, as long as the situation in Afghanistan does not continue to deteriorate, the impact on global financial markets will be limited, and factors such as Fed policy and the new crown mutation virus are the key forces that really affect the market.

"This (Afghanistan) is undoubtedly a human tragedy, a disaster," said Kristina Hooper, Chief Global Market Strategist at Invesco, "yet we have learned time and time again that no matter how big the disaster is, no matter how serious the geopolitical risks may seem, it rarely has much impact on the market." ”

A senior trader also told the 21st Century Business Herald reporter that the current situation in Afghanistan has not caused a significant impact on the global market, and the hedge operations of some hedge funds are more for precautions, and the current impact is mainly in Afghanistan and the surrounding small area.

<h4>The Afghan currency fell to an all-time low</h4>

It is important to note that the volatile situation in Afghanistan has had a huge impact on the country. Market data shows that Afghani fell for the fourth consecutive day on the 17th, and the Asian session fell further by 1.7% to 83.5013 Afghani to 1 DOLLAR. Since the beginning of the year, the Afghani has fallen by more than 10% against the dollar.

However, afghanis do not reflect the real situation against the dollar, and the long-term turmoil has left Afghanistan's financial infrastructure extremely imperfect, and official quotations have little practical significance.

More significantly, in Peshawar, the largest currency market in Afghanistan's neighbor Pakistan, the exchange rate of Afghanistan to the Pakistani rupee plummeted by nearly 50% in one day. According to local forex broker data, 1 Afghani is currently equivalent to 1.20-1.40 Pakistani rupees. Before the fall of Kabul, 1 Afghani was 2.10-2.20 rupees.

For the future, the Afghan exchange rate will undoubtedly depend on how the Taliban regime transitions. In the Middle East, some of the currencies issued by the old government were accepted or used by the new government (e.g. Kuwait), but in Iraq, the currency also changed after the change of government, which caused huge losses to those who held the old Iraqi banknotes. At present, the market is biased towards the expectation that Afghanistan may be replaced after the change of regime in Kabul.

<h4>Affecting neighboring countries, Europe is also difficult to stay out of the matter</h4>

In addition to its own heavy losses, the situation in Afghanistan has also had a greater impact on neighboring countries and their economies, especially its neighbor to the east, Pakistan.

It is important to note that Pakistan currently has huge public debt and a sizable stock market, but the potential risks of instability and refugee flows could exacerbate pressure on Pakistan's fiscal repair program.

Shamaila Khan, head of emerging markets debt at Imperium, said, "The current situation is very disturbing. I think in the coming months and years, neighboring countries may have to deal with the influx of refugees. ”

Hasnain Malik, an analyst at research firm Tellier, said, "The spillover of impacts such as the influx of refugees ... It could be a setback to Pakistan's recovery and reforms. ”

The impact is also reflected in financial markets, with Pakistan's sovereign dollar bonds maturing in 2031 falling 1.8 cents on the 16th, the biggest drop since the Pakistani government priced the notes in March.

Markets had earlier expected the Taliban to regain control of the Afghan regime, but the speed at which it was entering Kabul surprised almost everyone. The volatile situation has worried some foreign governments that the chaos and instability that have swept Afghanistan could spill over into neighboring countries and even send waves of refugees as far away as Europe.

Austrian Foreign Minister Alexander Schallenberg warned that Europe could soon feel the instability in Afghanistan. "Sooner or later, conflicts and instability in the region will spread to Europe and then to Austria."

In addition, German politicians and commentators have begun to discuss how to deal with the Afghan refugee problem. On the 16th local time, at the CDU party committee meeting held in Berlin, German Chancellor Angela Merkel said that many people will try to leave Afghanistan, and the German government will work closely with neighboring countries in Afghanistan to make every effort to help these countries receive refugees. But Laschet, chairman of Germany's ruling CDU party and prime ministerial candidate, has rejected promises that Germany will take in large numbers of Afghan refugees.

Turkey has also expressed concern about the number of refugees who could enter its borders. Turkish President Recep Tayyip Erdogan said on the 15th: "We are facing a wave of Afghan immigration through Iran. ”

Kay Van-Petersen, a global macro strategist at Saxo Capital Markets in Singapore, said the effects of the Afghan crisis could eventually spread to a wider scale, with many Afghan refugees likely to seek asylum in Europe, after a massive influx of migrants from Europe.

<h4>Where does the chaos end up? </h4>

Looking back at history, during the 1996-2001 administration, the Taliban implemented a series of extreme policies, including not allowing women to go to school, strictly controlling recreational activities, and bombing the Bamiyan Buddha, a world cultural heritage site, despite global opposition.

Therefore, how the Taliban will act in the future has also become a topic of great concern to the outside world. Yin Gang, a researcher at the Institute of West Asian and African Studies of the Chinese Academy of Social Sciences, said that if the Taliban returned to the extreme policies of the past, it could not last.

Wang Feng, an associate researcher at the Institute of West Asian and African Studies at the Chinese Academy of Social Sciences, said that if the Taliban can implement a more moderate Islamic policy, including domestic political, social and foreign policies, live in harmony with neighboring countries and gain popular support, then their contradictions with warlords will become secondary contradictions, and the possibility of civil war will be relatively reduced. But if the Taliban's measures in consolidating power do not have popular support, civil war may not be avoided.

In addition, Li Qingyan, an associate researcher at the Institute of Developing Countries at the China Institute of International Studies, said that whether the Taliban can hold the country under siege depends on whether it can build an inclusive regime to the greatest extent possible and absorb the political forces of all ethnic groups in the country.

Although the situation in Afghanistan will not have a too obvious impact on the market in the short term, the risk of Afghanistan becoming a hotbed of international terrorism again in the future cannot be ruled out. Jim Vogel, an interest rate strategist at FHN Financial, said in a note that the development of the situation in Afghanistan means that 38 million people in Afghanistan will be thrown into chaos, and the world still affected by the epidemic will be further in turmoil.

On August 16, State Councilor and Foreign Minister Wang Yi said in a telephone conversation with the US Secretary of State that China is willing to communicate and dialogue with the US side, promote a soft landing on the Afghan issue, promote no new civil war or humanitarian disaster in Afghanistan, no longer become a breeding ground and sanctuary for terrorism, and encourage Afghanistan to establish an open and inclusive political structure that conforms to Afghanistan's national conditions.

Looking ahead, J.J. A. Thompson, Chief Market Strategist at TD Ameritrade Kinahan said, "For those Americans who are still in Afghanistan, the situation is very bad. As far as market movements are concerned, we will have to remain on the sidelines about its longer-term impact. ”

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