【The Path to Prosperity】Impact of Middle East Situation on Markets

U.S. and Israel Strike Market Forecast

1. Stocks (Equity)

• Overall Trend: Global stock markets are expected to see a correction of approximately 3% to 10%.
• Most Affected Industries: Airlines (especially long-haul carriers in Europe and Asia, as well as Middle Eastern airlines), hotels, cement, chemicals, transportation, and shipping.
• Main Beneficiary Sectors:
• Defense: Geopolitical tensions are driving a new global defense supercycle.
• Healthcare: Demand and revenue are relatively stable with diversified global income sources, often showing more defensive performance, making it a suitable allocation during turbulent times.
• Energy Sector: Limited further upside is expected as geopolitical risks have largely been priced in. However, technical upward potential remains, depending on future developments in the Middle East.
• Most Impacted Regions: Emerging markets, especially Middle Eastern stock markets, with Dubai stocks being the most vulnerable.
• U.S. Stock Performance: More resilient, as the core U.S. market is not directly linked to the conflict.
• “Magnificent Seven”: Likely unaffected or even potentially rebounding.

2. Fixed Income

• Middle Eastern Fixed Income: Under pressure, especially non-investment grade issuers.
• High-Risk Assets: Bahrain bonds carry relatively higher risk.
• Other Pressures: Saudi and Qatar Sukuk (Islamic bonds) may also face selling pressure.
• Global High-Yield Bonds: May weaken due to rising valuations and limited risk premiums; reducing exposure is advised.

3. Foreign Exchange (FX)

• U.S. Dollar: Expected to strengthen across the board.
• Major Currency Pairs:
• EURUSD and GBPUSD: Expected to weaken relative to the dollar due to dollar strength.
• USDCHF: Expected to remain relatively stable, as the dollar’s strength is partly offset by the Swiss franc’s safe-haven demand.

4. Commodities

• Crude Oil: Potential for a 7% to 10% increase before the conflict, with future trends depending on whether the Strait of Hormuz is disrupted and whether OPEC adjusts production further.
• Gold: Valuations are already high; despite increased geopolitical tensions, upside potential is limited.

Reference: EFG Macro Monday – Economics & Markets Updates (Middle East War Special)

This information is for reference only and does not constitute any investment advice.