As asset allocators try to chart a course ahead amidst conflict in the Gulf, the Singapore-headquartered group sets out three scenarios.
UOB Asset Management is neutral on equities relative to
benchmarks, overweight gold and underweight cash against a
backdrop of geopolitical turmoil.
The asset management arm of Singapore-headquartered UOB – overseeing S$43.4 billion
($33.8 billion) in assets as at the end of February – also
stresses diversification and selectivity in equities, and remains
diversified across fixed income, it said in a note that
sketched out three broad scenarios for the global economy.
The firm, along with peers, is trying to figure out asset
allocation as global energy markets and others are roiled by the
war between US/Israel against Iran. Oil prices have surged as
Iran closed off the Strait of Hormuz, raising question marks
over global growth.
UOBAM said global growth and corporate earnings expectations
remain broadly constructive across major regions, underpinned by
continued investment in artificial intelligence, energy and
infrastructure. However, recent geopolitical developments
– particularly in the Middle East – have materially
increased uncertainty, raising the risk of energy-market
disruptions, renewed inflation pressures and higher market
volatility.
The Iran conflict is “no longer a single-outcome risk,” it
said.
In a 40 per cent probability scenario, geopolitical tensions
ease, allowing energy prices to stabilise, inflation pressures
moderate, and risk assets recover. Another 40 per cent
probability scenario assumes prolonged disruption, leading
to heightened volatility and downside risks to economic growth
and markets.
In a lower probability (20 per cent), but more severe scenario,
the conflict escalates, and recession risks rise materially, the
firm said.
“While geopolitical outcomes remain difficult to predict, markets
are likely to focus less on political intent and more on the
implications for economic stability, inflation and risk
premiums,” Anthony Raza, head of UOBAM Multi-Asset Strategy,
said. “As a result, investors are reassessing the reliability of
the global policy and security environment, increasing the
likelihood of structurally higher risk premiums and reinforcing
the need for more cautious, resilient and diversified portfolio
construction.”