Given the brutality of the attack on Israel, it feels inappropriate to comment on narrow investment issues. But 20 months on from Russia’s invasion of Ukraine, recent events provide another window on geopolitical risk and have accelerated the investment shift towards safe-haven assets.
By the time Investors’ Chronicle hits the shelves on 13 October, we will have had a further steer on the health of the UK economy through official figures covering gross domestic product as well as the latest figures on services, manufacturing and industrial production. It’s doubtful whether investor sentiment has improved markedly despite recent upward revisions to post-pandemic economic growth, as it is far from clear whether the impact of 14 successive increases in the base rate is fully apparent. At any rate, the jump in short-dated UK bond yields points to mounting fears over economic contraction. Inflation has been trending downwards, albeit at a shallower pitch than the US rate. However, Iran’s possible involvement in the attack on Israel has raised the spectre of renewed inflationary pressures if — as seems conceivable — economic sanctions against Tehran are tightened.
The inverse correlation between crude oil prices and the US dollar occasionally breaks down when the global security situation deteriorates. Yet from an investment angle, it’s worth noting that the FTSE 100 outperformed many rival indices because of the weighting to energy stocks. That’s the flipside of the criticism that’s often levelled at the index because of its low-growth characteristics, at least compared with its tech-heavy counterparts. It’s understandable why policymakers would want to see more of the UK’s private fintech complex go public, but the influence of ‘old world’ stocks shouldn’t be ignored. There is a direct relationship between crude prices and the profitability of the oil majors, so share prices will act accordingly if the situation in the Middle East escalates.