Market has already adjusted expectations but remains questions about the war
Redacción Mapfre
Market, particularly the stock exchanges, initially reacted with declines at the start of the conflict between the United States and Iran, because investors are experiencing fear and uncertainty. After reaching a new equilibrium, future developments will depend on whether the conflict is prolonged or spreads geographically, according to Alberto Matellán, CEO of La Financière Responsable.
The responsible investment executive at Mapfre explains that market has already adjusted its expectations, although it remains to be seen whether the conflict will be prolonged or spread to other countries. In the bond market, the reaction has been price declines. “Their movement is counterintuitive, because they are driven by three elements: expected inflation, growth, and fear. The market is showing an aversion to inflation, which is pushing bond yields upward,” he adds.
The price of crude oil is also a key variable “because it can influence inflation expectations,” Matellán indicates. The release of reserves by Western countries will have a limited long-term effect. “Ultimately, it's a balance between supply and demand, and the problem we could face is that oil prices don't rise further, but that's because demand stagnates,” he says.
The role of the European Central Bank is also a key. Are interest rate hikes on the table to curb inflation? “The risk of inflation is high”, Matellán admits. “But an ECB decision based solely on a conflict lasting only a few days or weeks doesn't make much sense. When there's an external shock to inflation, reacting by raising interest rates would be a mistake".
In this context of high uncertainty, what advice can be given to investors? Although each type of investor is different, Matellán believes that those who delegate their portfolio management to third parties “should adjust their portfolios according to their objectives. As for professionals, I don't see any reason to change portfolios now. If the conflict escalates, then there might be reasons to make changes,” he concludes.
