Escalation in the Middle East: How we protect your portfolio – and what you should do now

In last week’s article, we discussed the growing tensions in the Middle East. Since Saturday, the conflict has developed into an open military confrontation. Geopolitical events such as these understandably trigger concerns – primarily for the people in the region, of course, but also with a view to developments in the near future: what could this mean for the real economy, interest rate trends and ultimately for our own investments?

In the following, we would like to explain transparently what has happened, how we are actively protecting your portfolio during this phase and why prudence on the markets is now your best guide.

What exactly happened?

On February 28, the USA and Israel launched a large-scale series of strikes against military targets in Iran. These attacks were directed against leadership structures, the Revolutionary Guards (IRGC), air defenses and facilities for missiles and drones, among others. The country’s spiritual leader, Ayatollah Ali Khamenei, was also killed in the process, as confirmed by Iran on Sunday night. In any case, it is clear that central complexes were hit hard. Iran responded immediately with its own missile and drone attacks on Israel and on US bases in the Gulf states, which led to airspace being closed at times.

For the global economy, one bottleneck in particular is now coming into focus: shipping through the Strait of Hormuz. We are already observing that oil tankers are increasingly avoiding the route and insurance premiums for cargo ships are rising significantly.

What does this mean economically?

In the short term, these uncertainties may cause oil, gas and transportation prices to rise. This may slightly increase inflation and temporarily dampen sentiment on the stock markets. Our baseline scenario (with a probability of around 60%) assumes that we will only see a slight economic dampener and will not experience any lasting disruptions in the Strait of Hormuz. Initial assessments suggest that oil prices could rise significantly when the markets reopen on Monday. However, OPEC’s announcement to increase its production volume could have a dampening effect on prices. However, as long as global shipping traffic remains largely intact, we expect this first “oil premium” to normalize again. We also believe that central banks (such as the European Central Bank (ECB) and the US Federal Reserve (Fed)) are likely to stick to their course for the time being and only consider cutting interest rates in the event of genuine stability stress.

What do we do in the portfolios?

We currently consider our funds and portfolios to be well positioned for the current market phase. In general, we are slightly defensively positioned in our portfolios and funds with an equity allocation, which is in line with our strategic orientation. Our allocation to gold should also act as a counterweight to the current geopolitical shock. Investments in money market-related instruments also dampen volatility, but also allow us to seize opportunities that could arise from the turmoil.

What do we keep an eye on for you?

We keep a close eye on the most important economic early warning systems so that we can adapt our risk management at any time:

• Global trade routes: We are keeping a close eye on whether shipping through the bottleneck of the Strait of Hormuz is working and how global transportation costs and insurance premiums are developing.
• The energy markets: Instead of short-term price fluctuations, we pay attention to indicators that give us early warning of a longer-term shortage on the oil and gas market.
• The economic situation of companies: We are constantly checking whether the current uncertainty is making loans more expensive for companies, which could slow down the global economy.

Our recommendation for you: Keep calm

Even if the news situation may seem threatening at the moment, political developments on the financial markets are often only of a short-term nature. For you as an investor, it is important now:

• Think long-term: keep an eye on your investment goals. Tactical short-sighted reactions and panic selling usually do more harm than good to long-term wealth accumulation.
• Stay level-headed: Spread your investments widely and keep an eye on your potential returns. Solid diversification across different asset classes is the best buffer against geopolitical fluctuations.
• Seek a conversation: It is completely normal to feel uncertain during such phases. Do not hesitate to talk to your advisor to clarify any questions you may have about your individual constellation.

Please note: investing in securities involves risks as well as opportunities.

 

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