Iran Risk May Linger in Financial Markets for a While Longer
U.S. benchmark stock indexes climbed to record highs this week even as the U.S. and Iran appeared to be on the brink of war. The return of investment-risk appetites was attributed to what appears to be a de-escalation of tensions after Iranian missiles hit U.S. targets in Iraq without causing any casualties.
So is that the end of that? Not so fast, says Jonathan Mackay, senior market strategist at Schroders. He joins the “What Goes Up” podcast to discuss the outlook for markets amid a sudden spike in geopolitical uncertainty. Some highlights:
“It’s just hard to believe that’s the end of the sort of tit-for-tat and back and forth. And if you look back at past geopolitical events, it tends to be the market sort of taking things into account as uncertainty rises, and responding like you would think -- risk assets selling off and safe havens rallying. And then as peak uncertainty comes about, everything reverses. And I don’t think we’re at peak uncertainty quite yet.’’
On what investors should do:
“You have to go back to the fundamentals, right? What are you getting paid for in terms of risk in the market? And it’s very hard at this point, versus where we were at this point last year, to find an asset class that’s like oh, it’s worth taking on that risk given still uncertainty over trade, still uncertainty with Brexit, the Iran-U.S. conflict potentially evolving into something more serious. What we’ve been doing is saying people should still consider duration. We think rates may rise a little bit this year if we get a cyclical rebound, but it’s going to be constrained. And you still want to go for those markets where you’re getting at least a better bang for your buck. We think there’s value in emerging markets, there’s value in Europe, there’s value in value sectors within the market. And there’s not a lot of value in other sectors like high yield bonds, U.S. growth, sort of growth at any price.’’
Also joining the podcast is Bloomberg journalist Vildana Hajric, who discusses her reporting on how investors are reacting to the situation.
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