The fight in the Middle East is starting to affect the world’s financial markets, which means that oil prices, currencies, and stock markets are all going up or down, which will eventually affect investors’ retirement savings.
The JSE’s All Share Index has also dropped, but not by much. It’s only down 3% in the last month and isn’t following oil prices. However, Sasol may be helping it out. The company was up 11.5% on the day as of lunchtime yesterday, likely because of high oil prices.
The petrochemical company has gone up 55.7% in the last month and was trading at R193 a share on Friday afternoon. R53 is its lowest point in 52 weeks.
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During times of shock, like now, brokers and asset managers tell people to hang tight and look at the long term. The ALSI is up 71.54% over the past five years, for example. The index reached an all-time high last July.
The S&P 500 was down 1.52% on the day as of noon yesterday, but it has gone up 69.21% in the last five years. A close look at how the rand has been doing and how that bourse has been doing will show you where it might have been better to invest. However, the main point is still the same: don’t change your mind about stocks on a whim, especially not for pension funds.
Effect on investments
But investors will still be affected. Stephan Erasmus, an investment analyst at Anchor Capital, said that the war has a number of ways that it affects South African savers.
He said, “The Iran war is a big deal for South African savers because it hurts them by lowering the value of stocks, making the rand weaker, and raising oil prices.”
Erasmus said, “The damage really depends on how long the war lasts.” A short, sharp shock hurts, but it’s easier to deal with. But if you keep the Strait of Hormuz closed for months, the problem gets worse: it lowers portfolio values, makes it harder for families to make ends meet, and slows growth, all at the same time.
Rand, oil, and changes in value
The rise in the conflict has already had an effect on the financial markets, especially through changes in currency and energy prices.
Kevin Lings, STANLIB’s chief economist, said that oil prices rose quickly because people were worried that the conflict could affect supply, which made the whole market more volatile.
“Markets reacted quickly to the start of the war.” “Oil prices went up because people were worried about supply problems. Energy stocks did better than the rest of the market. Global equity markets saw more volatility and times when people didn’t want to take risks. Safe-haven assets, like the US dollar, saw more money come in,” he said.
The rand has also been under a lot of stress. Lings says that as of Monday, the currency had lost about 4.3% of its value against the US dollar since late February.
“Interestingly, the rand was the third worst-performing currency in emerging markets in March.” He said, “This makes sense because the country is vulnerable to a rise in international oil prices.”
A look at the rand over the course of a year.
According to Trading Economics, the rand fell to about R16.81 to the dollar as of yesterday afternoon. It has lost more than 5% in the last month, but it is still stronger than it was a year ago.
Bianca Botes, director at Citadel Global, said that the oil markets have changed a lot since the conflict started.
She said, “Two weeks into Operation Epic Fury, the global energy market has gone from a severe supply shock to a brief relief, only to return to renewed pressure.”
Botes said that last week, the markets wanted to know, “How high will oil prices go?” The question has changed this week to a harder one: “How long will they stay at these high levels?”
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For the first time since Russia invaded Ukraine in 2022, Brent crude briefly went above $100 a barrel. It then fell back down and then rose again.
Botes said that tanker traffic through the Strait of Hormuz has dropped a lot, which has disrupted a major oil route around the world. She said, “The disruption has already stopped about 20% of the world’s supply of crude oil and natural gas.”
Rates of interest and inflation
Inflation and growth expectations also go up when oil prices go up. Izak Odendaal, an investment strategist at Old Mutual Wealth, said that even small increases in the price of oil can have an effect on the world economy.
He said, “As a rule of thumb, a steady $10 per barrel rise in the price of oil slows global economic growth by about 0.1 to 0.2 percentage points.”
Odendaal also said that “when it comes to inflation, the rule of thumb is that a $10 per barrel increase will raise global inflation rates by about 0.4 percentage points, all else being equal.”
Odendaal said that businesses and consumers are also less certain when energy prices go up.
Odendaal said, “The longer the conflict goes on, the more likely it is that energy infrastructure in the area will be seriously damaged, prices will keep going up, and the global economy will suffer.”
Higher fuel prices are still a major threat to inflation and growth in the area. Annabel Bishop, the chief economist at Investec, said that the cost of imported fuel is still a big risk for South Africa’s economy.
Long-term investors told to stay calm
Advisers say that even though the market is volatile, geopolitical shocks don’t usually have a long-term effect on diversified portfolios.
Holburn Asset Management said that when there are geopolitical tensions, investors often change their minds quickly, moving money out of risky assets and into perceived safe havens like gold, the US dollar, and government bonds.
These changes can cause short-term swings and sector rotation instead of a big market crash. Commodity producers often do well while consumer sectors suffer.
The war in the Middle East has a ripple effect.
Cornerstone Wealth said that when the market is stressed, the biggest risk is often how investors act, not how the economy is doing.
The company said, “Our own actions are usually the biggest risk in times like this.” “History shows that selling during geopolitical shocks often means leaving just before the markets start to recover.”
Analysts say that the most important thing for investors to think about is whether the conflict will have a big impact on companies’ long-term earnings, rather than how the market moves every day.
