Worried about the Middle East Conflict
On June 12, Israel initiated a series of airstrikes in Iran targeting the country’s nuclear sites. This was followed up with deadly strikes being traded by both nations over the next several days.
Concerns about possible spikes in energy prices and resurgence of inflation come to mind.
Is this a replay of the 2022 bear market?
We looked at 27 military conflicts and wars in the Greater Middle East and Europe, starting with the 1948 Arab-Israeli War up to the 2023 Israel-Hamas war, observing the effects on equities closest to the conflict (European Equities).
The findings show that equities fell by a median of -4.3% in the following two weeks after the start of a conflict but subsequently rally strongly, with a median gain of +11.2% in just under three months.
Extending this analysis to global markets, we look at specific instances closest to today’s conditions.
There are a few cases where the start of the conflict led to further declines in equities. The Russian invasion of Ukraine in 2022 was one such example.
The conflict exacerbated the high and rising inflation of 2022 with a spike in energy prices. Combined with rising interest rates globally, these stoked recessionary fears. After the initial reaction, global stocks continued falling more than -20% over the next seven months before bottoming out in October. This is seen in the chart above (white)
Conversely, the 2023 Israel-Hamas War looks much different. Global stocks initially sold off some -4% over three weeks before commencing a cyclical uptrend starting at the end of October 2023 up till February 2025, adding +41% to global stock returns.
Context Matters
What matters most for stocks is the macro-economic environment that we are in. In 2022, the Russian-Ukraine conflict exacerbated already weak macroeconomic conditions. Whereas in 2023, the conflict had almost seemingly no effect on global markets.
The current environment looks much more like October 2023 than February 2022. Inflation remains in a down-trend with global recession risk low at this moment in time.
While the human toll from wars is catastrophic, investors do not have to be spooked by geopolitical conflicts when it comes to their investments. We continue to remain invested in global markets while keeping a keen eye on risk, ready to respond quickly if market conditions deteriorate thereby capturing returns wherever it shows up while focusing on preserving capital.
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