You're listening to Strictly Business Podcast with Lindsay Williams.
We knew it was going to happen, it has happened, but the trick now is to work out
what's next.
I'm talking, of course, about the Iran invasion by Israel and the United States
of America.
With me from 91 in London is head of multi-asset income, and that's John
Stockford.
John, we did know it was coming because of the build-up of the ships all around that
region.
but as I said The reaction of the markets was fairly predictable, but how much more
predictability will there be?
It's suddenly a little bit more uncertain than it was right at the beginning.
Yeah, I think that's true to an extent.
I mean, I think we are quite used to sort of geopolitical shocks that have a market
impact and then,
you know, they tend to fade with time.
This one, though, I think people maybe were expecting it.
to be over after a day or so.
So rather like the sort of Venezuelan operation.
But actually, it sounds as though it may go on for a bit longer.
I think Iran has more to throw back than Venezuela did.
And they obviously have proxies and so forth.
And so I think there's a sense that they want to, you know,
finish or at least finish the job to a level that they can declare victory or
Trump can declare victory.
And walk away.
And clearly, it's escalated to some extent in terms of drawing in, you know,
neighbors.
And there are question marks about, you know,
how long aerial defensive systems can continue to repel missiles,
given there's a limited supply of defensive missiles.
So yeah, I mean, I think there's a lot of uncertainty in the market.
So at the moment, the market's repricing for that.
But But I guess at some point we would still expect it to be.
you know, the market will settle down and then reverse and probably get most of the
way
back to where it started in a few months.
One of the things you can do, of course,
is put up a giant graph in your office and you can show geopolitical events and
overlay the
performance of the market.
And what you'll invariably see is geopolitical event number one market dips
and then either rapidly rises or rises back
over a period, but then goes higher.
And that will happen, I suppose.
But it's a question of how quick it's going to be and how deep the little dip is
going to be.
And it's interesting because it's suddenly got a bit worse with the Nasdaq down a
couple of percent and oil prices having shot up another
7% to around $83 a barrel.
And this is the thing.
Every single report I read, hastily put together probably, is focusing on the
Strait of Hormuz.
And that really is very important because it's 20% of the world's energy goes
through there.
And if oil goes to, I don't know, 90 to 100 for a while, then the Fed and all the
other central banks might have a little bit of a
problem.
Yeah, again, I think that's right.
So it's not just oil.
It's also liquefied natural gas, which, you know, is important across the world,
particularly as a sort of feedstock for electricity.
And so, you know, the price of that shot up too.
The big buyers there are Asia and Europe.
Europe obviously no longer can get.
its gas easily from its neighbour in Russia.
So, you know, you're sort of seeing, I think,
a bigger risk premium being built into European stocks, Asian stocks, and so on.
US also, but I think there are winners and losers.
So defence stocks, energy stocks, etc.
And we've obviously seen some backing up in bond yields, which reflects, you know,
concerns about a lasting boost to
inflation.
Again, I think typically these things get overdone.
For us, I think it's more about what was the situation before this happened?
How long is it going to last?
And how much of it in the impact might be lasting.
But generally, I think focus on looking for opportunities that get created by this
either things
that have sold off too much, or things that have rallied, you know, quickly and
maybe too far that are So.
in line with the thesis that you had to start with.
And there we're sort of focused, I think, on, you know, what's happening in terms of
global activity,
what's happening broadly in terms of global inflation rates.
But in particular, we came into this pretty cautiously position because we
think a lot of
equities in particular and corporate bonds have been priced for no risk and
perfection.
And maybe this is a reminder that there is a bit of a risk, but we think there are
other bigger risks out there in terms of
you know valuation of of ai in general sort of speculation across a range of
markets and so we're we're
sort of thinking more about how we want to be positioned for that in the medium term
and then we'll see what opportunities
this noise or volatility gives us.
That's not to diminish its importance for people in the region, but in terms of
market impact,
our central view is it's unpleasant, but it won't last.
Exactly.
The unpleasantness is going to make a comment that you're now probably from the
school of the big chart on the office wall saying this is what happened last time.
There was a similar geopolitical event down and then up again.
It's also interesting you use the phrase priced to perfection,
because this might be a kick in the backside for the markets to say it's not
perfect,
there'll be a bit of a sell-off and that will give people the chance to sort of
recalibrate and say, yeah, they were too risky up there.
The line of least resistant was to the downside.
And we got the excuse to sell off given to us by the Iran situation.
But you're lurking in the wings, are you, at 91?
Yeah, I would say so.
So as I said, we were fairly defensively positioned.
So net-net, we're probably looking for opportunities to buy weakness in bonds and
to a lesser extent in
equity markets.
And I guess, you know, we're not rushing in because it does look like this might
last a week or two or possibly a month.
We don't think it can last too long just because, you know, there is, I think,
a limit to the level of defense that the Gulf states and Israel and the US can
maintain.
And, you know, Trump's going to want to declare victory and they're not going to
want to go down the sort of forever war route.
I think, you know, that was something that he was pretty clear on when he ran for
office.
So he's talked about four or five weeks and some things are happening, you know,
on a faster timeline than they expected.
So our best guess is it probably isn't over in a week.
The other thing that might curtail it is if the stock market really starts to move
or the bond market really starts to move.
You know, we've seen that there's limited appetite in the White House for economic
pain.
And so, yeah, that could be another thing.
So I think the Iranians are going to want to hold on and not see a regime change, I
think,
and hope they can outlast Trump.
Trump's going to want to basically neutralize them as far as possible and
then declare victory.
And so we may end up in a position where, you know, it's the same regime in power,
but with less ability to project.
And Trump saying...
job done, whether the Israelis and others agree with that, we'll wait and see,
and what it means for the longer term stability in the Gulf and so on again.
But I think for major markets, we're all waiting for, okay, Trump to declare
victory, essentially.
Yes, there is the chance, of course, that there's going to be a struggle, a power
struggle that could go on for quite a while in Iran.
I'm talking about politically now, maybe there's someone coming in to continue with
this strong arm sort of regime,
and they...
crack down even more than they have been doing so quite recently.
They threaten the West with the Strait of Hormuz being blocked or tankers being
firebombed or whatever it is that they're going to do.
And there also could be a power struggle with other factions within the country.
So also instability.
And markets don't like instability, certainly not in that region.
And one other thing I have to ask you, do you ever think that maybe the Trump allies
in the Middle East,
some say you get fed up with him and Netanyahu and say, We're not allies with
Israel.
We're fed up with your golf courses and your crypto ventures and your wars.
And we're going to go back to our roots.
There's lots of things out there for conspiracy theorists.
Yeah, I mean, I think there are a lot of moving parts.
And these things are easier to start than to, you know, end in a way that you plan.
I guess we tend to take the view that, you know, the regime is pretty well embedded.
There's opposition, but it's not.
necessarily joined up.
And there is a power structure that is quite repressive.
And to some extent, Trump, I don't think is particularly interested in democracy,
if you look at what happened in Venezuela.
So, you know, I think he'd be quite happy if either the existing regime or, you
know,
some internal coup happened,
and you end up with an autocratic set of leaders with whom he feels he can do a
deal.
You know, I think he'll be looking to say, OK,
in exchange for not pursuing your nuclear ambitions and not projecting terror in the
region,
you know, we'll start to relieve sanctions, etc.
So I'm cynical.
He's particularly interested in the welfare of the Iranian people.
I just think he's keen to do to do a deal.
That's what he does.
Whatever that deal may be.
A very final question.
At what stage do you as head of multi-asset income at 91 in London sit
down with the team and say, wait a second, this is getting serious.
The oil price has now averaged 87 over the last three weeks.
It doesn't look as though it's going to end.
Oil is going to potentially go to 100.
There's only three months worth of stocks worldwide.
So inflation is going to start to rise and you sit down and you do a bit of shifting
in your portfolios.
Yeah, I mean, as I said, we're relatively defensively positioned, so we can add
risk.
So I think we're in quite a good place to be.
I would say, in addition, fortunately,
we went into this with the world fairly well supplied with oil and also, you know,
OPEC willing to sort of continue to step up production.
Although obviously that's to some extent impacted by the potential or the actual
closure of the Straits of
Hormuz.
So it's not.
entirely straightforward.
China, you know, for what it's worth, they've got about 100 days, I think, of
oil in reserves.
They've been very diligent in building reserves.
So, yeah, I mean, I think it's the longer it drags on, the more damage it will do.
But our base case is the US doesn't want a ground war like Iraq.
And even in the case of Iraq, you know, you did have fairly quickly, oil went up a
long way,
but then it did come.
back most of the way.
So, you know, it was probably the first three to six months, you know, the Ukraine
invasion, actually,
that was a pretty short lived impact on energy prices, it was pretty severe, but
it was pretty,
pretty short lived, and so on.
So I think, you know, history suggests that these things are painful,
but they're probably an opportunity to look for things that are hit hard, unless
something, you know,
really Thank you.
has changed that is material but i think in many cases you shoot first and ask
questions later i think uh
you know that's in most cases i mean clearly you were asking about the gcc
whatever the the gulf you know i think business models there
might be more permanently damaged or at least temporarily damaged in terms of
people's
willingness to fly with those airlines holiday there and live and work in the
region that's definitely something and that's a
consideration I think, for those countries.
But also, yes, they're probably going to.
want to put pressure on Trump to make this quick.
But they probably also don't want Iran to be left with an offensive capability,
given it's shown its capacity to fire at its neighbours.
So yeah, we shall see.
It's unpleasant, but it's fascinating.
And thanks very much for walking us through it.
John Stockford is head of multi-asset income at 91 in London.
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