October began with a jolt as tensions between Iran and Israel escalated. This caused global oil prices to rise, with WTI crude and Brent up 4%, hovering around $74 and $78 per barrel, respectively. Negative sentiment began to spread in the markets, triggering short-term stock sell-offs, with markets experiencing corrections, including in the U.S. and Indonesia.

Just weeks ago, major equity markets worldwide reacted positively to the U.S. Federal Reserve's decision to cut interest rates in September. This was soon followed by highly anticipated policy measures from China, boosting investor confidence and prompting a surge in riskier assets, such as equities. However, the escalating tensions in the Middle East are beginning to cast a shadow over global investor sentiment. There is a growing concern that the conflict could escalate further and lead to a full-scale regional crisis, potentially drawing in other major nations, which would severely disrupt global trade and supply chains. 

If the conflict does escalate, it could significantly impact global crude oil prices and production. Iran, a key oil producer contributing about 4% of global production, controls strategic access to the Red Sea. A halt in Iranian oil exports, coupled with tighter sanctions from other oil-producing nations (OPEC+), could push oil prices back to $100 per barrel, resulting in renewed inflationary pressures due to high energy costs.

Simpan Views

What's next?

Markets remain relatively calm as global investors await more clarity before making major portfolio adjustments. However, a prolonged conflict may prompt foreign investors to restrategize by allocating capital to safer assets to minimize portfolio volatility. The combination of geopolitical risks and economic uncertainty may force central banks to rethink monetary policy. Rising inflationary pressures could lead to a delay in further rate cuts or even a return to tighter monetary policies.

Following the 2022 Russian energy crisis, many countries moved to diversify energy supplies, including a shift towards renewables. It is also expected that members of OPEC+ may consider raising production volumes to prevent supply constraints. Additionally, demand for oil has been subdued due to slow activity from countries such as China and parts of Europe. However, demand could pick up again, driven by China's fiscal stimulus to revive its economy.

‍Investment Opportunity and Portfolio Positioning

We continue to increase our equity allocation in commodity-focused companies, particularly in metals and oil, which are well-positioned to benefit from China's economic stimulus and the potential surge in oil prices amid geopolitical uncertainty. 

The Simpan Sustainable Equity Fund offers an opportunity to yield returns from these sectors, aiming to maximize returns and support your long-term financial goals. 

Grow your wealth over time and invest now.