Hi, I’m Bianca Rose, Senior Portfolio Manager at Morningstar Investment Management Australia.

Over the last few days, tensions between the United States and Iran have escalated, resulting in significant loss of life, including the death of Iran’s leader, and increased geopolitical uncertainty in the Middle East.

Some key things to note are:

  • Shipping through the Strait of Hormuz, a key area for global oil supplies, has slowed to a near standstill, pushing oil prices up.
  • A prolonged surge in oil prices increases inflation expectations, and dampens the likelihood of interest rate cuts in the US.
  • Global stocks declined and oil prices spiked as fighting entered its third day Monday.
  • And investors are moving to ‘safe haven’ investments, such as gold and government bonds, while the U.S. dollar has strengthened.

So what does this mean for your investments?

  • A disruption in oil and gas supply could depress economic growth over the short term. We also expect increased volatility in equities and commodity markets in the near-term given the fluidity and uncertainty of the situation. There may be a ‘flight to safety’ favouring lower risk and more predictable assets, such as Government bonds, over the short-term.
  • In this environment, it is important for investors to maintain a long-term perspective and remain focused on the true value of assets. While this situation is unique, it also has some commonalities with previous escalations in the Middle East. This means it’s not a totally new scenario, and while it’s not like-for-like, volatility is a feature of investing. Short-term market volatility brings buying and selling opportunities for long-term investors like us. While it’s difficult to predict at this stage how long this conflict will last, constructing a robust and resilient portfolio is crucial to navigating uncertainty.

What is Morningstar doing?

Morningstar’s long-term view means that your portfolios are well-equipped to weather volatility. Our portfolios remain diversified across different asset classes, geographical regions, and investment strategies. This, as well as a preference for flexibility in portfolios, allows us to move where the best opportunities present themselves.

Our investment process has been tried and tested over several years and throughout a range of challenging market environments, including COVID in 2020, the 2022 equities market sell-off, and last year’s ‘Liberation Day’ downturn. Through all of these events, we’ve maintained a patient and measured approach, and are experienced in safeguarding portfolios through challenging market conditions. We’ll continue to monitor the situation and update you with relevant information.

Thanks for watching, and take care.