In recent days, a troubling wave of events has cast a dark shadow over global financial markets, as renewed hostilities between Russia and Ukraine sparked sudden and sharp declines in stock indexes across Asia and Europe. The Asian markets, particularly the A-shares, witnessed a grim turn of events as close to 4,000 out of 4,600 listed companies closed in the red. The Hang Seng Index reported a staggering drop, plummeting by 842 points, reflecting a 3.54% decrease in value. The negative sentiment is likely to spill over into the European and American markets as they open later in the day, suggesting a cocktail of factors that investors are grappling with in this precarious environment. Why do markets react so violently to conflicts? The principle that “war brings financial downfall” has been an enduring theme for over a century, yet the nuances beneath this maxim merit closer examination. Are stock prices genuinely correlated with wartime events, or have investors simply conditioned themselves to react with panic at the slightest hint of conflict?To understand this phenomenon, one must explore the structure of share prices and market indices. Primarily, a market index is composed of high-cap stocks, and when the majority of these weighted shares falter, the index suffers a downturn. Conversely, a spike in prices signals a robust market environment. A mass withdrawal from stocks, leading to a glut of sellers compared to buyers, will also catalyze a sharp decline in prices.At the core of this discussion lies the intrinsic value of companies as expressed through their stock prices. A stock's price—a reflection of market sentiment—multiplied by the number of shares outstanding, yields the company's market capitalization. Taking a specific example, if Company A has issued 1 billion shares and each share closes at 20 yuan, the market capitalization would tally up to a formidable 200 billion yuan, indicating the market's current valuation of the firm’s overall worth.While the number of shares an organization has might remain constant, fluctuations in share prices predominantly drive market capitalization, thus raising a pivotal question: do share prices accurately reflect an organization's actual value? Let’s delve deeper. Assume Company A has total assets amounting to 1 billion yuan with liabilities of 600 million yuan, resulting in a net asset value of 400 million yuan. With 100 million shares issued, the net asset per share would stand at 4 yuan. Although net assets provide insight into a corporation's financial health, this figure cannot adequately encapsulate the company’s wild potential - particularly if the CEO, akin to a transformational visionary like Steve Jobs, is steering the business towards unforeseen profitability.Thus, the real worth of a company is best gauged by its anticipated earnings. If Company A can generate a net income of 100 million yuan in 2022, trickling to 200 million yuan in 2023, and subsequently 300 million yuan in 2024—before dissolving at the year's end, the present value, summing up to 600 million yuan, outweighs the mere net asset value of 400 million yuan. Should Company A continue operations beyond 2023, the estimation would invariably be, even more, bullish.Applying this reasoning to publicly listed companies presents its challenges—projections about future earnings become increasingly thorny with the passage of time. Predicting near-term profits may be manageable, but projecting income years into the future becomes speculative. The unpredictability of how long a company can sustain operations compounds the difficulty of making accurate assessments. Yet, even amidst disruptions like war, companies face unique performance challenges.When conflict erupts, the populace typically retreats indoors, reducing workforce availability and stymying production capabilities dramatically. This, in turn, leads to decreased consumption, negatively impacting revenue streams. War has a catastrophic effect on economic infrastructure and can result in substantial direct losses as property, both commercial and personal, becomes collateral damage.In essence, warfare diminishes a company's potential to earn, particularly if historical profit expectations of, say, 100 million yuan per year are abruptly cut to an average of merely 20 million due to conflict. Reduced future profits logically translate to decreased value, making it a straightforward calculus.Returning to the primary consideration of whether stock prices mirror real value swings, the answer becomes clearer post-conflict: most businesses, barring defense sector entities, cannot further their production efforts, causing sales numbers to drop. This dual-pronged impact invariably leads to deteriorating profit margins and a reduction in value. A downward spiral in stock prices that aligns with declining corporate valuations suggests that, indeed, the old adage holds water.Yet, an interesting question arises: do all businesses worldwide face adverse effects from conflict? A nuanced analysis suggests the following: 1) enterprises in warring nations will unavoidably suffer degradation in operations, 2) firms with trade links to these nations may also experience reverberations, and 3) companies devoid of trade ties with the contested nations may endure only superfluous impacts under globalization—despite some level of interconnectedness.The downturn in Russian and Ukrainian stock markets is a direct consequence of diminished future earning potential attributed to conflict, as previously mentioned. European markets, by extension, bear the brunt of this upheaval due to proximity and trade footprints. But how are A-share companies faring in light of this turmoil?In my estimation, aside from those involved in energy trades with Russia—specifically oil and natural gas—most A-share enterprises remain insulated from significant adverse outcomes. Business operations persist as usual, irrespective of Russo-Ukrainian tensions. The projections for prospective earnings are largely unscathed; however, the market capitalization may still shift downward.Some skeptics may posit that escalating conflict disrupts oil supplies, engendering an energy crisis for Chinese firms. Such assertions may represent an exaggerated interpretation of globalization's effects. While Russia faces Western sanctions curbing oil exports, the country can still pivot its sales strategically to nations like China, who can capitalize on this situation to augment imports, ultimately avoiding a crisis.Thus, it is evident that an energy crisis does not decisively impede the future profitability of A-share entities. In instances of significant price corrections, experienced investors often adhere steadfastly to their positions, conscious of the fallacy in allowing emotional reactions to govern their decisions. With patience, a favorable turnaround in market conditions remains a plausible horizon.Finally, to end on a historical note, while global stock markets—including the A-shares precursor—suffered during WWII, the subsequent peace ushered in record highs not long after. Financial resilience often emerges from the depths of turmoil.