It stands and falls with the Strait of Hormuz

It is not only uncertainty about the duration of the war and its consequences for the region that is weighing on prices. This time, the concerns run even deeper. Unlike during the twelve-day war last June, for example, the mullah regime, with its back against the wall, has effectively closed the Strait of Hormuz. If the most important trade route for oil remains closed for a longer period of time, this would have a severe impact on the global economy. On the one hand, the diversion of ships around the southern tip of Africa would lead to higher freight rates. These could then, with a time lag, make goods and services in Europe more expensive and lead to renewed inflationary pressure. Supply chains in Europe could also be disrupted, as deliveries of goods from Asia would also be delayed. On the other hand, a prolonged rise in energy prices would lead to a new surge in inflation, dampening hopes of further interest rate cuts. A sustained increase in the price of oil by USD 15 per barrel could raise consumer prices in the eurozone by almost 0.5 per cent and limit the increase in disposable income accordingly. The EU would be particularly hard hit by the disruptions on the international energy market.

Quelle Grafik: Vorarlberger Nachrichten

The financial markets saw a ‘flight to quality’ or ‘safe havens’.

In terms of currencies, the US dollar was in particularly high demand yesterday, rising by more than 1 per cent to 1.168 EUR/USD. This confirmed its status as the world's leading currency. The US dollar often rises when investors flee precious metals or when there is global uncertainty. The US economy is often perceived as a pillar of support and a ‘safe haven’.

The Swiss franc was also in high demand, particularly on the forward markets over the weekend, where it traded briefly at 0.905 against the euro. The Swiss franc is traditionally considered the safest currency haven in times of crisis, especially during global conflicts. It often gains value in times of great uncertainty.

In the equities sector, there was a shift from cyclical stocks to defensive stocks considered to be crisis-resistant. The most sought-after stocks were those in the utilities (RWE, FMC, Redei, Enel Spa), healthcare (Abbott Laboratories, Johnson & Johnson) and consumer staples (Nestle, Unilever, PepsiCo) sectors, as well as quality stocks (author's note: in which the R&B Aktien Global Aktiv fund invests predominantly). Technology leaders such as Nvidia and Microsoft were in particularly high demand here. They are considered to be financially strong and resilient companies. Both tech giants gained around two per cent yesterday.

Gold also benefited, as it is seen as a reliable hedge against geopolitical tensions. At times, the price jumped back above US$5,400 per troy ounce, approaching its record high from the end of January. At that time, the precious metal had cost almost US$5,600 per troy ounce. However, following the initial successes of the warlords in Iran, the price fell back again.

In the bond sector, US government bonds (Treasuries) were in high demand. They are used as a liquidity reserve in times of crisis.

Aviation and travel stocks were the losers. Shares in the aviation and travel industry came under particular pressure due to closed routes and general uncertainty. Airports in the Gulf region serve as hubs for Asian air traffic, and the effects are being felt by connections and airlines worldwide. Shares in TUI and Lufthansa lost more than ten per cent at times.

The initial reaction of the stock markets varied

The US stock markets reacted most calmly. This was helped by the current ISM Purchasing Managers' Index, which points to a better than expected mood in US industry. On the New York Stock Exchange, the indices even turned positive last night: the leading US index, the S&P 500, recovered from its losses at the start of trading, as initial investors apparently already see the price declines as an opportunity to buy. In addition, the futures markets created an opportunity to buy the S&P 500 as it approached its low of 2026.

By contrast, there were significant losses in Europe and Japan. Both stock markets traditionally react very sensitively to armed conflicts. This is due to their high dependence on energy imports and the close interdependence of supply chains. Both the Eurostoxx 50 and the Nikkei Index fell by just over 2 per cent.

Recommendation for equity investors

The short-term stock market performance clearly depends on how long the Strait of Hormuz remains closed. Around one-fifth of global oil consumption is transported through this strait. Last year, an average of more than 20 million barrels of crude oil, condensate and fuels passed through the strait. On a positive note, the leading OPEC producers Saudi Arabia and the United Arab Emirates have significantly increased their oil exports in recent days as part of emergency plans, which is counteracting the rise in oil prices.

LWe remain positive about the stock markets in the long term. Favourable financing conditions, an overall neutral to loose monetary policy, particularly in the US, and stable conditions in Europe, supported by government investment programmes – especially in Germany – are favourable for global equities.

We therefore recommend that long-term equity investors hold on to their investments. Weak stock market days in the context of the Iran conflict can be used to good effect to increase holdings. To this end, we favour globally positioned equity funds (such as our R&B Aktien Global Aktiv Fonds), which offer good protection against crises thanks to their broad regional diversification.

For highly experienced equity investors operating in the short term, we recommend the energy and commodities sectors (companies such as ExxonMobil, Chevron and Shell benefit directly from higher margins due to the jump in crude oil prices), utilities (shares in companies such as RWE and E.ON usually benefit from rising energy prices), defence companies (shares in Rheinmetall, Hensoldt, Lockheed Martin, BAE Systems and Elbit Systems often record significant gains, as further increases in defence budgets and consumption of ammunition and defence systems are expected) and stock exchange operators and brokers (such warlike events usually lead to extremely high trading volumes). Regardless of whether prices rise or fall, companies such as Deutsche Börse, the CME Group and online brokers earn money from every transaction and from increased volatility).

However, these short-term investments in ‘war winner industries’ are highly speculative and depend heavily on the duration and intensity of the Iran conflict. As soon as there are signs of de-escalation, these gains are often sold off just as quickly.

DISCLAIMER

This report provides a brief overview of the economic environment and has been prepared solely for marketing purposes. The information does not constitute financial analysis, investment advice or a recommendation to buy or sell. The information has not been prepared in accordance with the legal provisions promoting the independence of financial analysis and is not subject to any prohibition on trading following the dissemination of financial analysis. This report cannot and is not intended to replace investment advice. The information in this report is based on our own analyses as well as on external sources that we consider reliable, but which we have not subjected to neutral review. We accept no responsibility or liability for the accuracy or completeness of the information. The opinions expressed in this report are solely those of the authors and are subject to change at any time; such changes of opinion do not have to be published. Past performance, simulations or forecasts are not a reliable indicator of future performance. Forecasts are a poor estimator.