Escalating friction between the US and Iran will likely have limited impact on Asian stock markets, according to UBS Global Wealth Management and JPMorgan Asset Management.
Following the US airstrike that killed Iran’s top military commander Qassem Soleimani last week, Iran said it will no longer abide by any limits on its enrichment of uranium and Iraq’s Parliament voted to expel US troops from the country.
The MSCI Asia Pacific Index fell as much as 1.1 per cent on Monday (Jan 6), as traders returned from holidays. The impact was especially pronounced in Japan, where the stock market reopened after a four-day holiday to find a much stronger yen. Oil and gold continued to climb.
The geopolitical crisis added a new angle for money managers and advisers looking for direction on 2020 after a global rally that pushed the Asian equity benchmark up 16 per cent last year. Here’s what market participants are saying about the impact of the Middle East situation on their strategies.
Previous periods of increased tensions suggest that the impact on broader markets tends to be “short-lived”, said Mark Haefele, global chief investment officer of UBS Global Wealth Management in Zurich.
He said worried investors should consider the less-volatile options market, and recommended dynamic and systematic allocation strategies for portfolio diversification, or structured notes “that offer a degree of capital protection”.
OIL AND EARNINGS
The market impact will largely be determined by the effect on oil prices, and to what degree this is already priced in, said Kerry Craig, a global market strategist at JPMorgan Asset Management. While most Asian economies are net oil importers, rising global trade volumes and a reviving manufacturing cycle are “supportive of earnings in Asian markets”, where estimates are on the rise.
“2019 illustrates that uncertainty doesn’t have to be the enemy of investors given the strong market returns in spite of heightened political tensions,” he added.
The Middle East situation could distract the US from pursuing its trade conflict with China, said Amir Anvarzadeh, a market strategist at Asymmetric Advisors in Singapore. The trade deal between the world’s two-largest economies is still a more important factor for Japanese stocks, he said.
“We suspect the market will soon get bored” of the US-Iran conflict and “move on”, Anvarzadeh said. A belligerent North Korea poses a bigger potential geopolitical shock to Japan’s market, he added.
Margaret Yang, a strategist at CMC Markets Singapore, said the crisis “may prove to be short-lived”, adding that it will likely have limited impact on Asian economies despite the short-term negative market sentiment.
Yang, who is positive on emerging-market assets, said there will likely be a cyclical recovery in global manufacturing activities and improving business conditions following a US-China trade truce.
STAY THE COURSE
Bharat Joshi, an investment director for Aberdeen Standard Investments Indonesia, plans no “short-term shift” based on geopolitical concerns. While gold and oil may climb in the near term, this “should normalise over time”, he said.
“Our investment theses are usually based on fundamentals of countries and companies, which continue to hold up,” Mr Joshi said.
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