The recent escalation of tensions in the Middle East has led to immediate market reactions, notably a surge in oil prices, which rose by over 6% within hours of Iran’s attack on Israel.
Alberto Matellán, Chief Economist at MAPFRE Inversión, emphasised that the longer-term impact on the markets will depend on developments in the coming days.
“The situation hinges on whether the objective is to damage the region’s oil production capacity, which could have severe ramifications for the markets,” Matellán stated. He noted that if no major escalation occurs, significant production losses may be avoided.
Matellán highlighted that should a conflict erupt aimed at destroying oil production infrastructure, it could create a dire situation affecting the entire Persian Gulf. “In that scenario, we would face serious issues with oil prices, as this is the scenario currently driving market fluctuations,” he explained.
Despite these concerns, Matellán advised against making hasty portfolio adjustments in response to current events. “It’s not a prudent long-term strategy to increase exposure to an industry based solely on specific incidents,” he cautioned. He advocated for investment decisions to be rooted in long-term forecasts. “If we foresee an increase in global conflicts over the next 50 years, it would make sense to consider increasing allocations in the defence sector,” he added.
However, he did suggest a modest increase in exposure to safe-haven assets, such as gold, which has been experiencing rising prices for several months. “While it may be prudent to slightly bolster holdings in gold, it’s essential to remain vigilant and monitor how current events unfold,” he remarked.
In addition to geopolitical developments, fresh inflation data from the Eurozone has emerged this week. For September, a year-on-year inflation rate of 1.8% was reported, falling below the European Central Bank’s (ECB) target and marking a 0.4% decrease from the previous month. This is the lowest inflation rate recorded since May 2021.
Matellán noted that while this data may be perceived as positive, “there are still risks indicating that inflation is not yet under control.” He cautioned that the new figure could be misleading, although it may pave the way for additional interest rate cuts. “However, we must be cautious of implementing more cuts than necessary,” he warned.
As markets navigate both geopolitical tensions and economic indicators, investors are advised to remain grounded in their long-term strategies while closely monitoring developments.
