Geopolitics

A small note on over the weekend events.

Iran attacked Israel, via drones and missiles, in an event well-telegraphed by Iran, and fully anticipated by Israel, its allies, and (to the point of this note) the market.

As background, oil markets have generally traded robustly, these past few weeks, on a rising geopolitical risk premium, and when news of grounded flights over Iran and Jordan emerged, fears of an imminent significant strike sent risky assets lower, and commodities, particularly oil, higher.

Iran has subsequently declared its attack “as concluded”, which probably settled some of those market concerns. The drones and missiles themselves were mostly shot down en-route, and with no immediate plans of a follow-up from either side, we go back to the status quo of “tense” conditions, which, generally speaking, will continue to favour the US dollar (safe haven) gold (seen as a good war hedge, at least for now) and commodities (real assets).

Stock futures in the US are up, Israeli stock markets opened up, and whilst bonds had a modest bid, it wasn’t huge, and is as much about attractive headline yields (there’s plenty of demand for bonds above 4%) as it was about anything else.

Balanced portfolios are designed to weather this sort of thing, and we’ve not made any changes. A little while ago, in our direct equity portfolios, we did buy some oil and gas producers (STO’s, WDS), which had sold off (WDS was down to some $28/29, which we thought was reasonable given the above geopolitical concerns) but otherwise feel that the multi-asset portfolios are well enough diversified that we don’t need to do anything pre-emptive, but of course would look to deploy capital opportunistically if a larger sell-off got underway.

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