Warning Bells for Investors: Is Trump's Unpredictability a Greater Risk Than a Middle East Conflict?
The potential impact of American military engagement on financial investors
By Christina Lohner
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In the current climate, investors tread on thin ice when it comes to the unpredictable actions of US President Donald Trump. However, the anxiety isn't primarily due to tensions in the Middle East.
The specter of an intensified Middle East crisis looms over stock markets. According to a Bloomberg news agency report, the US is reportedly gearing up for a possible attack on Iran in the near future. But capital market expert Stefan Riße contends that investors shouldn't fret about this reason, instead focusing on another.
Politics Baffling and Frivolous "Fifty-fifty" Trump hedges on question of military intervention
Due to the US's powerful military force contrasted with Iran's weakened position, Riße speculates that the impact on the stock markets would be limited if the US were to enter the conflict between Israel and Iran. The US's air superiority is so vast that neighboring countries would hesitate to challenge the Americans, believes the asset manager Acatis' capital market strategist. Consequently, he anticipates a modest impact, and no wildfire, in the Middle East. "There will also be no oil price surge," Riße asserts in an interview with ntv.de.
Although there may be delays if oil tankers can no longer pass through the Strait of Hormuz, Riße anticipates a four-week bottleneck. Between China and other countries, the economic situation is manageable, as the oil supply issue mostly affects China, due to its higher reliance on Iranian oil compared to the West. In case of need, China can import more oil from Russia.
"History has shown that situations calm down after a Middle East conflict," says Riße. However, Pakistan, the nuclear nation, remains a different story. Yet Riße sees no imminent danger from this country at present, as it poses no threat to the US.
Trump's Trade War Sowing Seeds of Unrest
The real threat to stock markets lies in the lingering US trade war, Riße suggests. There is significant concern about the prospect of a recession or even stagflation. "Rising inflation rates should be expected in the coming months," warns Riße, adding that the oil price increase only accelerates this trend.
If Trump's tariffs and immigration policies fuel inflation, this could turn out to be the greater danger. With absent farm workers during the harvest season and reduced investments due to widespread uncertainty, the economic turmoil might prove detrimental for stock prices.
"I wouldn't sell stocks due to the Iran war," shares Riße, still advocating caution. Stock prices might be overvalued, especially for large titles and indices, he states, concluding that high valuations may not offer much promise for growth in the coming years.
Sources: ntv.de
Enrichment Insights:
- Trade War Vulnerabilities: The potential risks from Trump's tariffs include stock market pullbacks due to policy uncertainty, increased costs for businesses and consumers, a possible global recession, and disruptions in trade and growth, all impacting stock valuations.
- Equity Market Risks: Equity investors may be behaving complacently, overlooking the true risks brought about by tariff announcements and general uncertainty surrounding trade tensions and tax policies.
- Global Recession Risks: Increasing tariffs, especially targeted at China, fuel concerns about a potential global economic slowdown or recession, with J.P. Morgan Research placing the probability at 40% by 2025.
- Negative Impact on Trade and Growth: The trade war, particularly China's retaliatory tariffs, can indirectly affect US companies with exposure to global trade, leading to reduced economic activity and potential market volatility.
- Currency and Policy Uncertainty: Currency fluctuations resulting from tariffs and ongoing uncertainty in exchange rates can contribute to market disruptions, threatening stock valuations.
- The unpredictability of President Trump's actions, particularly in regards to employment policy, has raised concerns among investors, according to specialist Stefan Riße.
- Despite ongoing tensions in the Middle East and the potential for a conflict between Israel and Iran, Riiße predicts that the impact on stock markets would be moderated due to the US's military superiority and the hesitation of neighboring countries to challenge American forces.
- The greatest risk to stock markets appears to be the ongoing US trade war, as it has the potential to sow seeds of unrest through policy uncertainty, increased costs for businesses and consumers, a possible global recession, and disruptions in trade and growth, all impacting stock valuations.
