【Iran Crisis】Invesco: If there is no significant change in the tone between the US and Iran, Jing Shun expects oil prices to rise further and stocks to weaken.

The Middle East conflict has entered its fifth week, and Invesco’s Global Research Director Benjamin Jones believes the risk of escalation is rising, stating that last week’s developments have reduced the likelihood of a de-escalation of the conflict in the short term. If the U.S. or Iran do not show a significant shift in rhetoric, oil prices are expected to rise further, stocks are expected to weaken further, and the dollar will remain strong.

Benjamin Jones stated that the market is remaining orderly, primarily because, before entering March, investor positioning and market sentiment have not been overly optimistic. The weak market performance is mainly concentrated in the sectors that performed the strongest last year, reflecting that investors are reducing overly concentrated positions rather than making large-scale withdrawals to hold cash.

He indicated that there has not been a panic sell-off, and the fund flows in exchange-traded funds (ETFs) for March also show that investors are maintaining a wait-and-see attitude. Although the fund inflows in March across multiple categories are weaker than in January and February, there has not been a massive outflow of funds.

He pointed out that the current market is driven more by sentiment than by actual supply disruptions. Countries around the world are still receiving energy shipments that had departed from the Middle East before the conflict. However, with about 10% of oil supply disrupted, this situation is difficult to sustain. Subsequent supply is expected to start slowing, and some Asian countries have taken measures to curb demand. For now, this should have limited short-term impact on the economy, but in the coming weeks, countries may need to take deeper measures. This may prompt analysts to lower profit forecasts and lead to further market downturns.

The firm noted that the risk of further declines in risk assets is increasing, but the resilience of private enterprises is stronger than in previous crises, which should limit the extent of the downturn. Therefore, the prudent response strategy should be to remain vigilant and continue to closely monitor whether the fluctuations in market sentiment will evolve into actual supply shocks.

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