Investment Advisor Compass | Asset Performance During Multiple Regional Conflicts

(Source: Shanghai Stock Exchange ETF Home)

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Source: Yingmi Qieman Submission

Performance of assets during several regional conflicts, then and now comparison

The US-Iran war continues, and both sides have intensified their information and public opinion battles, impacting the capital markets. Reviewing several wars that significantly affected oil prices reveals some patterns.

The Fourth Middle East War (1973, Figure 2): Caused significant shocks to the equity markets of various countries within a year, then gradually recovered, with notable increases in commodity prices during this period.

The Iran-Iraq War (1980-1988, Figure 3): Had limited impact on the equity markets of various countries; during the war, markets actually surged, while commodities generally declined.

The Russia-Ukraine conflict (2022 to present, Figure 4): Had short-term negative effects on equities and commodities worldwide, but subsequent recoveries followed.

We can see that not every war causes a major market plunge; the rises and falls are more influenced by the cycle, market valuation, and other multiple factors.

Some changes are noticeable:

1. Countries are better prepared for oil shocks:

Before 1973, Western countries were accustomed to very cheap Middle Eastern oil, with no strategic reserves or alternatives. An oil embargo then caused huge shocks. Now, all countries have established strategic reserves, especially after the outbreak of the Russia-Ukraine conflict, and market panic has gradually decreased.

2. Changes in energy structure:

The earlier oil shocks occurred during periods of rapid fossil fuel consumption growth, whereas now we are in a transition phase toward carbon neutrality and peak carbon. Although dependence on oil remains high, many countries have seen declines over the years. The U.S. has shifted from an oil importer to an exporter, and Brazil’s oil exports have significantly increased in recent years.

3. Opportunities behind energy:

A review of Japan shows that whether during the Fourth Middle East War or the Iran-Iraq conflict, Japan recovered quickly and markets surged. Because Japan has no oil, oil crises pushed energy transformation, leading to the development of many fuel-efficient vehicle models, which later became popular worldwide and brought rapid economic growth opportunities. Now, China’s new energy vehicles have surpassed Japan to become the largest car exporter, and photovoltaic, nuclear energy, and other new energy installations are also leading globally.

Wars and rising oil prices can indeed lead to inflation or stagflation, but they also accelerate energy transition and create more investment opportunities. Humanity always unleashes unimaginable strength when facing difficulties.

Additionally, market declines are painful but also reflect overall valuation adjustments. From a domestic perspective, the impact is certainly relatively smaller.

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