Australian superannuation funds have seen over $100 billion eroded since the United States and Israel initiated missile strikes on Iran late last month, escalating a conflict that drove the local sharemarket to its lowest point since December. The S&P/ASX 200 plummeted by 2.9 per cent, marking its worst session since April, amid widespread global market sell-offs. Japan’s Nikkei index experienced a sharp decline, while South Korea’s market also suffered a substantial drop, briefly halting trade.
The market downturn was triggered by a surge in crude oil prices, nearing $US120 a barrel for the first time in four years, as Middle Eastern producers curtailed supply due to disruptions in the Strait of Hormuz. This spike in oil prices is expected to fuel inflation, with bond traders anticipating potential interest rate hikes. Australian three-year government bonds jumped to 4.58 per cent, their highest level since 2011. Stephen Innes of SPI Asset Management described the situation as a wake-up call for macro traders, highlighting the severity of the oil price surge.
Analysts are concerned about the conflict’s potential duration and impact. Initial expectations of a short conflict have been dashed by ongoing attacks across the Middle East, including attacks on an oil depot and desalination plant in Iran. The appointment of Mojtaba Khamenei as Iran’s new supreme leader signals a continued hardline stance, further escalating tensions. Helima Croft of RBC Capital Markets noted the lack of de-escalation indications and the rapidly deteriorating security environment, evidenced by the evacuation of US diplomats in Saudi Arabia.
On the ASX, the energy sector was a notable exception, boosted by gains in Woodside Energy and Santos. However, other sectors experienced significant losses, including BHP and Commonwealth Bank. Retail stocks are facing particular pressure due to the increased likelihood of interest rate rises. The market witnessed unusually high trading volumes, with $14.1 billion in trades compared to the average of around $8 billion. This reflects the widespread anxiety and uncertainty gripping the financial markets.
