Over the weekend, the US and Israel launched coordinated airstrikes against Iran and its leadership. In response, Iran has launched retaliatory strikes across a range of countries and installations in the region.
With travel and shipping already facing significant disruptions, we wanted to consider the immediate investment and portfolio implications of these events.
As we have noted before, geopolitics has been “noisy” for some time. But the impact on financial markets over the past couple of years has been more muted than we might have feared.
We’ve seen how financial investors have been willing to look past that noise and focus on the broader macroeconomic outlook, resisting the temptation to try to time markets. So far today, investors seem to be following a similar pattern, albeit with risky assets underperforming.
With that in mind, we should highlight a few points.
The outlook remains very uncertain and that could weigh on investor sentiment. The US is hoping to engineer a change of regime in Iran, but it remains unclear how achievable that goal is and how long it could take.
There are a couple of important parameters – specifically how long will the conflict last and how widespread will the impact be.
Currently, we think the conflict could extend longer than we’ve seen in the past, possibly longer than the 12-day conflict between Israel and Iran in June 2025. The longer the conflict continues, the greater the potential impact on the global economy.
In terms of breadth, we have seen military action across the region – including Saudi Arabia and the UAE, and some activity in Cyprus. So far, we haven’t seen much direct involvement by other major powers – notably Russia and China.
A widening conflict could represent a risk to the global macroeconomic environment and investor sentiment.
Regarding portfolio positioning, we are comfortable with our starting positions. Our multi-asset portfolios are well-diversified by geography, currency and asset class. Government bonds, both nominal and inflation-linked, should help cushion particularly mid to low-risk portfolios, given attractive starting yields. In our classic portfolios, our commodity exposure should also provide some useful diversification.
In terms of next moves, we think we have scope to add to equities within some of our portfolios should markets sell off. So far, however, with index moves so far relatively constrained, we haven’t yet seen the opportunity to act.
This is an evolving situation and we hope for speedy and peaceful resolution. In the meantime, we will continue to monitor markets and portfolios, ready to act should the need or opportunity present itself.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
