Australian investors felt the jitters on Wednesday amidst escalating tensions in the Middle East, with approximately $63 billion wiped off the Australian sharemarket. This came as the US and Israel continued striking Iranian targets, triggering a rush to pull money out of markets like South Korea, where benchmarks tumbled. However, some strategists anticipate that equity markets will largely look through the crisis, despite the initial panic.
The primary concern unnerving investors is the surge in energy prices. Brent crude spiked to $US85 a barrel, the highest since July 2024, due to conflict disrupting shipping through the Strait of Hormuz. Perpetual’s head of investment strategy, Matt Sherwood, highlighted Australia’s vulnerability as an oil-importing nation with limited petrol and diesel reserves. He warned that any major disruption to international shipping could pose significant downside risks to the Australian economy.
Despite the market turbulence, the conflict follows a strong February earnings season that propelled the S&P/ASX 200 to a record high. Many ASX-listed companies reported robust profits and optimistic earnings outlooks. UBS equity strategist Richard Schellbach noted that historically, the ASX 200 has averaged positive gains following major geopolitical events, suggesting the market may withstand the current crisis.
Bell Potter investment strategist Rob Crookston echoed this sentiment, noting that markets have historically remained relatively stable during contained conflicts. However, both analysts cautioned that a prolonged conflict and sustained rise in oil prices could trigger further risk aversion, especially as the Reserve Bank of Australia continues to combat inflation. The situation is further complicated by recent data indicating the Australian economy grew by 2.6 per cent in the fourth quarter.
