Conflict in the Middle East: What does this mean for Markets and our Portfolios

It is with great sadness that we find ourselves writing about more conflict in the world, with

last week’s events resulting in many atrocities and no doubt much human suffering, and our

thoughts and prayers are with those affected by such dreadful events.

 

The ongoing hostility has had an impact on financial markets, with investors carefully

assessing the potential for a broader conflict involving various nations. It is our hope, as well

as the consensus, that the involved parties have limited appetite for further confrontation.

Recent discussions amongst nations with key stakes in the region, such as Saudi Arabia, the

USA and Iran, may influence the situation in the coming days.

 

Nonetheless, the immediate future remains uncertain, and it is likely that military escalation

will continue. We anticipate that peace talks and negotiations will eventually take place. Any

escalation could disrupt various sectors, including oil supplies, affecting global economic

growth, and introducing market volatility.

 

To date, we have observed fluctuations in energy prices, driven by concerns about potential

involvement by certain nations. However, as the situation evolves, the initial price gains have

receded, and broader markets have remained relatively stable.

 

The conflict’s impact on the oil market is twofold, firstly because a significant portion of the

world’s oil supply transiting through areas such as the Strait of Hormuz (through which some

20% of the world’s oil supplies are transported*), and so any move by Iran or others to block

this shipping route could have significant implications for both supplies and therefore oil

prices. Secondly, Iran is a major oil producer with some 4%* of the world’s total. Any

disruption to these routes or this supply is therefore a matter of significant concern due to

its potential effects on global economic stability.

 

In the event that the conflict does broaden, it could significantly disrupt the flow of oil, which

could have implications for economic growth and financial markets. Central banks may

consider further support for their respective economies as necessary, including putting on

hold any further monetary tightening.

 

In anticipation of potential challenges, we have maintained cautious positions in portfolios

throughout this year, with an underweight in fixed income, an overweight in absolute return

and a neutral weighting in equities. In this delicate macroeconomic environment, we see a

compelling case for investment in the funds that invest in equities of quality companies which

should help us navigate uncertain times.

 

In our bond allocations, we have focused on strategic and flexible bond solutions that can

adapt to changing market conditions. The fund managers have proactively adjusted

portfolios in response to evolving circumstances and have been moving into higher quality

issues and those sounder credits in the markets as the environment was already one where

higher default rates were expected.

 

Furthermore, our diversified holdings in the absolute return space are strategically designed

to mitigate periods of heightened market volatility and uncertainty. These holdings are

intended to provide stability during challenging times.

 

In summary, we hope for peace and stability but are prepared for evolving conditions and

maintain a vigilant stance on unfolding events.

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Park Hall Financial Services Limited is authorised and regulated by the Financial Conduct Authority.

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