The recent escalation of tensions between Iran and Israel has sent global financial markets into a tailspin following Iran's massive missile and drone attacks on Israel. This has had significant repercussions across various economic sectors.
The Morgan Stanley Capital International (MSCI) World Index has experienced a downturn, with investors gravitating towards safe-haven assets. As a result, gold prices have increased by around 2%, and the US dollar index has also strengthened. Conversely, equity markets and emerging market currencies have shown signs of weakening.
Energy markets have not been spared, as international oil prices have surged by approximately 4% due to concerns over potential supply disruptions in the Middle East. Brent crude oil prices have exceeded $92 per barrel, marking the highest level in the past six months.
"Geopolitical risks in the Middle East are escalating, leading to volatility in global financial markets," remarked Seo Sang-young, a Korea Investment & Securities researcher. "Rising energy prices could heighten inflationary pressures, potentially influencing central banks' monetary policies."
In contrast, defense-related stocks have been performing well, with shares of major defense companies such as Lockheed Martin and Raytheon Technologies witnessing gains. However, airlines and travel-related companies are seeing declines. The U.S. 10-year Treasury note yield has fallen about 15 basis points to 4.40 percent due to a flight to safety.
"While the current geopolitical crisis may shock markets in the short term, history has shown that these shocks are usually temporary," said Marko Kolanovic, former global market strategist at JPMorgan. "Investors should maintain a long-term perspective and refrain from overreacting."
Concerns have arisen regarding this situation's impact on the global economy. A prolonged increase in oil prices could exacerbate inflationary pressures, potentially affecting central banks' monetary policies.
Meanwhile, the international community is making diplomatic effortsto prevent the conflict from further escalating. The UN Security Council has convened an emergency meeting to discuss peaceful resolutions, and major countries, including the US, are advocating for restraint from both parties.
Although the market instability caused by the crisis may persist in the short term, experts advise investors to remain calm. "Despite the severity of the current geopolitical crisis, it is unlikely to undermine the fundamental strengths of the global economy significantly," said James Nixon, senior economist at Oxford Economics. "Investors should focus more on long-term economic trends and corporate performance rather than reacting to short-term volatility."
Financial experts emphasize the importance of diversification and risk management in investment portfolios, especially amid rising geopolitical risks. A balanced investment strategy by region and asset class, alongside regular portfolio rebalancing, is crucial. Additionally, there is an increasing emphasis on environmental, social, and governance (ESG) investing, with sustainability considerations gaining importance.
The immediate impacts of the Iran-Israel conflict on global financial markets are substantial, yet markets have shown a capacity for resilience over the long term. This situation underscores the interconnectedness of the global economy and the significance of geopolitical risks in shaping financial markets.
