By: Peet Serfontein
Financial markets are acutely sensitive to unpredictable disruptions, often referred to as "black swan" events — surprise or unforeseen occurrences with the potential to cause widespread and severe disruption to economies and by extension, markets.
The metaphor is based on a Latin term that presumed black swans do not exist. In around 1697, Dutch mariners saw black swans living in Australia and the term was then reinterpreted to mean an unforeseen and consequential event. A statistical theory on black swan events was developed and the term was popularised by Nassim Nichola Taleb in 2001.
Black swan or extreme outlier events may arise from a variety of sources, including geopolitical conflicts, abrupt shifts in government policy, economic sanctions, natural disasters, global pandemics or corporate malfeasance. Their defining characteristic is their sudden onset, which typically triggers sharp, indiscriminate market reactions driven by fear, uncertainty, and a scramble for liquidity. For investors, grasping the dynamics of how such shocks impact markets—both in the immediate aftermath and over the longer term—is essential to navigating volatility and preserving capital.
A current example underscoring this phenomenon is a recent sharp escalation in global trade tensions following the United States' (US) decision to impose new tariffs on every single country in the world, and most notably, a punitive 145% levy on specific Chinese goods. This sudden policy shift has significantly rattled investor confidence and sparked fears of a severe disruption to global supply chains, a knock to global growth and possibly higher inflation.
Equity markets responded with heightened volatility, as investors quickly re-priced risk across sectors heavily exposed to international trade. The tariff announcement also led to a resurgence in safe-haven demand, lifting the price of assets such as gold, while most equity markets and emerging market assets more broadly came under pressure.
Immediate impact on financial markets
When an unpredictable event occurs, the initial reaction in financial markets is often abrupt and disorderly. Typically characterised by widespread panic, sharp sell-offs, and a sudden flight to safety, these moments of crisis can lead to severe dislocations across asset classes. Investors instinctively move capital into perceived safe-haven assets—such as gold, high-quality government bonds (like US Treasuries or UK Gilts) and defensive equities in sectors such as utilities or consumer staples. At the same time, riskier asset classes such as emerging market equities, high-yield bonds and small-cap shares often experience a steep drop in demand, leading to liquidity shortages, volatile price swings and wider bid-ask spreads.
Unpredictable shocks not only disrupt pricing but also destabilise investor confidence and market mechanisms. Algorithmic trading, stop-loss triggers and margin calls may exacerbate selling pressure, resulting in a cascading effect across global markets within minutes or hours.
Notable examples of early market reactions to Black swan events:
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The Brexit referendum (2016): The United Kingdom's (UK's) surprise vote to leave the European Union (EU) in June 2016 caught markets off-guard, triggering an immediate sell-off in the pound, which fell by over 10% against the US dollar overnight—the largest one-day decline in decades. In the immediate aftermath, UK equities dropped sharply, especially companies with EU-facing exposure, while global markets were briefly unsettled by concerns over the future of European integration.
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Covid-19 pandemic (2020): When the World Health Organisation officially declared Covid-19 a global pandemic in March 2020, financial markets reacted with unprecedented speed and severity. The S&P 500 dropped more than 30% in just over three weeks—the fastest bear market in history. In South Africa, the JSE All Share Index (ALSI) suffered a swift decline as investors fled emerging market assets. Safe-haven assets, particularly gold and US Treasuries, rallied sharply amid the uncertainty.
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Russia-Ukraine conflict (2022): Russia's invasion of Ukraine in early 2022 triggered a global surge in risk aversion. European equity markets dropped sharply, particularly in Germany and France, while energy prices soared amid fears of disrupted gas supplies. Brent crude oil breached the $100 per barrel mark for the first time in years. Wheat and fertiliser prices also spiked due to Ukraine and Russia's significance in global agriculture exports. Defence and energy shares rallied, but broader equity markets were roiled by fears of geopolitical escalation, sanctions and inflation. Currencies such as the Russian rouble collapsed, while the US dollar and Swiss franc strengthened significantly.
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US tariff shock (2025): The sudden escalation of trade tensions in 2025, marked by the US' imposition of tariffs on every country in the world and massive tariffs on China, has reignited fears of a global trade war. Equity markets have reacted with increased volatility, particularly in sectors reliant on global supply chains such as semiconductors, manufacturing, and consumer electronics. The announcement led to immediate declines in US, Asian and emerging market indices, while safe-haven assets, including gold and the Japanese yen, saw gains. Investor sentiment weakened due to concerns about retaliatory tariffs, inflationary pressures, and a potential slowdown in global trade and GDP growth.
These examples highlight how markets can react violently to sudden shocks, often pricing in worst-case scenarios before clarity emerges. The initial reaction is typically not based on fundamentals, but rather on fear, uncertainty, and the herd mentality. It is vital that investors remain calm and informed during such periods, as the most immediate reactions are often incorrect and temporary - meaning that they may present savvy investors with good opportunities to invest.
Medium-to long-term market response
As the immediate panic of an unpredictable event subsides, markets begin to recalibrate. Investors, analysts and policymakers gradually assess the true economic and financial implications of the event and rational price discovery starts to return. This phase is typically marked by sectoral divergence—industries aligned with structural shifts or new policy directions may recover swiftly or even outperform, while others with persistent headwinds may take significantly longer to regain ground. Over time, valuation gaps correct, sentiment stabilises, and longer-term investment themes emerge.
Notable examples of early mid-to long-term consequences of black swan events:
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Brexit referendum (2016-present): In the months and years that followed the shock referendum outcome, certain sectors—particularly exporters and globally-diversified firms—benefitted from a weaker pound. The London Stock Exchange eventually recovered, but investor sentiment towards UK assets remained relatively cautious amid prolonged negotiations, regulatory uncertainty, and a reshaping of the UK's trade relationships. The property market in London also saw structural changes as financial firms considered relocating parts of their operations to European hubs - this was further amplified by the impact of Covid-19 on office space more generally.
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Post-Covid recovery (2020-2021): Following the historic sell-off in March 2020, global equity markets staged a remarkable recovery by the end of the year, largely driven by major fiscal stimulus, ultra-loose monetary policy, and the rapid development of Covid-19 vaccines. The technology sector saw extraordinary gains as remote work, e-commerce, and digital adoption surged. The NASDAQ and other tech-heavy indices reached all-time highs. More cyclical sectors—such as tourism, hospitality, aviation and commercial real estate—lagged behind, grappling with long-term demand uncertainty and changing consumer behaviour.
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Russia-Ukraine war (2022-present): Thus far, the invasion and immediate market reaction (and political action) has resulted in the reshaping of entire sectors and policy frameworks. European nations accelerated their shift towards renewable energy, energy independence, and defence spending. Fossil fuel producers benefitted from elevated oil and gas prices, while alternative energy shares gained traction as governments prioritised green transition strategies. Supply-chain disruptions forced companies to reassess their global sourcing strategies, increasing investment in domestic manufacturing and technology innovation.
These examples illustrate how markets, while initially reactive, often transition into a more measured and differentiated phase. The winners and losers become clearer and new investment themes emerge from the chaos—be it digital transformation post-Covid, or energy independence following the Ukraine conflict. The US tariff shock is still fresh but may result in a recalibration of global supply chains or perhaps even a more fair global trade regime longer term. For investors with a long-term horizon, these events (and we are currently living through such an event) can present valuable opportunities, provided they maintain a disciplined, research-driven approach.
Why the frequency of unpredictable market events may be increasing
In recent years, financial markets have experienced a noticeable rise in the frequency and intensity of unpredictable events. This trend is not merely coincidental but rather reflective of a broader set of structural, geopolitical, technological, and environmental shifts that have made the global financial ecosystem more interconnected, fragile and susceptible to shocks.
Key factors contributing to disruptive events occurring more frequently:
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Heightened global interconnectivity: Disruptions in one region can quickly reverberate across the world. A political crisis in a small nation, a cyberattack on a major financial institution or a production halt in a crucial supply-chain hub can have immediate and widespread consequences.
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Geopolitical fragmentation and rising nationalism: The post-Cold War era of relative geopolitical stability has given way to increasing polarisation, protectionism and great-power rivalry. The rise of economic nationalism and unilateral policymaking, such as trade tariffs or sanctions, creates uncertainty and market instability.
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Climate change and environmental shocks: Extreme weather events—such as floods, droughts, wildfires and hurricanes—have become more frequent and severe due to climate change. These events not only cause humanitarian crises but also disrupt agricultural production, insurance markets, energy supplies and infrastructure, all of which can trigger sudden market movements.
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Rapid technological disruption and cyber risks: While technological innovation has fuelled economic growth, it also presents new systemic vulnerabilities. High-frequency trading, algorithmic trading systems and reliance on digital infrastructure mean that markets can react faster and more violently to unexpected data or events. Additionally, cyberattacks on financial institutions, government databases or utility systems can lead to large-scale disruptions with immediate market consequences.
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Social and political instability: Populist movements, income inequality and political instability in both developed and emerging economies contribute to policy unpredictability and regulatory shocks. Elections, mass protests and regime changes can bring sudden shifts in economic direction, taxation and market regulation—often without warning.
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Monetary and fiscal policy uncertainty: Following years of accommodative monetary policy, many central banks are now navigating complex challenges related to inflation, debt sustainability, and economic rebalancing. Sudden shifts in interest rates, quantitative tightening, or changes in fiscal policy can surprise markets, especially when communicated poorly or perceived as politically influenced.
In combination, these factors contribute to a financial environment that is inherently more volatile and susceptible to sudden shifts. While some events will always remain unforeseeable, the structural backdrop today arguably increases the likelihood of market-disrupting surprises.
For investors, the key is not to predict these shocks but to prepare for them. This means building diversified, resilient portfolios, maintaining liquidity and focusing on long-term fundamentals. In a world of rising uncertainty, adaptability and informed decision-making are essential for managing risk and seizing opportunity.
