Tension in the Middle East: “One specific attack doesn’t justify making changes in the portfolios”

During the last few days, the ongoing tension in the Middle East reached new heights, and the impact on the markets was immediate, with the price of oil rising by more than 6% within hours after Iran’s attack on Israel. Alberto Matellán, head economist at MAPFRE Inversión, explains that the impact will depend upon what happens in the days to follow.

“It all depends upon whether the objective is to damage the region’s oil production capacity, which could have a very serious impact on the markets”, he says, although if no major escalation occurs, significant production losses could be avoided.

Matellán also explains that if a war breaks out where the aim is to destroy oil production capacity, this would be the most extreme situation, and one that could end up affecting the entire Persian Gulf. “We would then have a serious problem with oil prices, because that scenario is the one that’s now affecting prices the most.”

However, the head economist also insists that the existence of this tension should not cause changes in the portfolios. “It’s not a good long-term strategy to increase exposure to an industry based on specific events”, he says. “Decisions about whether to increase holdings in one industry or another should be based on long-term outlooks. If we’re predicting that there will be more wars in the world during the next 50 years, then it would make sense to increase the weight of companies in the defense industry.”

Matellán does think that it makes sense to slightly increase exposure to safe-haven assets like gold, where trading prices have already been on the rise for several months, although he also sees a need to wait and see how current events continue to evolve.

Good inflation data in the Eurozone

This week we also received some new data about inflation in the Eurozone, with a year-on-year rate of 1.8% announced for the month of September. This figure is now below the target set by the European Central Bank (ECB), and 0.4% below the previous month’s figure. It is also the lowest rate seen since May of 2021.

Matellán explains that although this can be taken as good news, “there are still some risks indicating that inflation is not yet under control”, and he adds that this new figure “could be deceptive”. What is clear, however, is that this new data could be used to support additional interest rate cuts, although he also warns of the danger of making more cuts than necessary.