The impact of the ongoing tension in Iran is definitely visible on the global markets. There has been a decline in stock markets and a rise in bond yields. But if an investor keeps a balanced portfolio of 60 percent equities and 40 percent bonds
highlights
- Despite Iran war, decline in 60:40 portfolio is only 5 percent, impact limited
- Goldman Sachs estimates further market recovery possible amid ups and downs
- Advice to investors: Move away from tech and focus on gold, real assets and defensive stocks.
The impact of the ongoing tension in Iran is visible on global markets. Stock markets have fallen and bond yields have risen, but if an investor maintains a balanced portfolio of 60 percent equity and 40 percent bonds, he has not suffered a major loss yet. The total decline has been only around 5 percent, which cannot be considered a big decline. Talking about global asset classes, weakness has been seen in most of the segments.
According to Goldman Sachs, since the ongoing war in Iran, there has been a decline in the global stock market and a sharp rise in bond yields, but its impact on balanced portfolios (such as 60 percent equity and 40 percent bond) has been limited so far. It further said that due to stable economic growth, limited long-term inflation and ongoing policy easing, markets may recover going forward, although risks remain in the near term.
Why didn’t the stock market fall much?
Two big reasons have been given behind this. First, investors fear that if they change their portfolio too often, there could be a sudden reversal in the market. Second, the global economy was very strong at the beginning of the year, which provided support to the market. If we look at the performance of different asset classes of the global portfolio since the beginning of the Middle East war, there has been a decline of about 5 percent in the world portfolio.
Read full article
There was a slight decline in US bonds and Asia bonds, that is, they remained relatively flat and did not suffer much loss. At the same time, there was a moderate decline in US stocks and Europe bonds, which shows that the equity market was under pressure due to the impact of war and interest rates.
-
Photo:
Decline from 8 percent to 12 percent
The decline in private markets and UK stocks was even bigger. The biggest loss was seen in Europe ex-UK stocks, APAC ex-Japan stocks and Japan stocks, where the decline ranged from 8 percent to 12 percent, which shows the weakness of the global equity market.
Iran war and rise in crude oil prices are creating risks for traditional portfolios. However, so far the damage has been limited. According to Christian Mueller-Glissmann, head of asset allocation at Goldman Sachs, the global 60/40 portfolio has declined by only about 5 percent so far, which is much less than a big decline like 2022.
Why is the stock market strong?
According to the report, despite shocks in energy and interest rates, stock markets remain strong. A major reason for this is that the global economy started from a strong position, where GDP growth was above 3 percent. Apart from this, investors are avoiding reacting aggressively to geopolitical events this time. Although economists have slightly cut growth estimates and increased inflation estimates, the market is still not completely bearish.
impact of interest rates
Generally, a sharp rise in interest rates is harmful for a 60/40 portfolio, as the buffer of bonds becomes weaker. But this time short-term yields have jumped more, while long-term yields have remained relatively stable. This time, compared to 2022, inflation is lower than before and bond yields were already at high levels, due to which the shock has been limited.
further outlook
Goldman Sachs’ baseline estimate is that market volatility will continue, but a recovery is possible for the rest of the year. The chances of recession are low and inflation is also expected to remain under control, due to which growth may remain stable in the mid-term. Experts believe that in the current period of uncertainty, investors need to strengthen their portfolio.
What should investors do?
- Reduce over-reliance on innovation (tech/AI)
- Include inflation-protecting assets such as real assets and gold
- Add Defensive Stocks and Other Options for Risk Management
- Assets such as infrastructure may also be prioritized as they have the potential for real cash flow growth.
Although gold has seen some decline recently, in the mid-term it may emerge as a better hedge against inflation and currency risks.
Disclaimer: This article is for informational purposes only and should not be construed as investment advice in any way. ET NOW Swadesh recommends its readers and viewers to consult their financial advisors before taking any money-related decisions.
related news
Author
end of article
