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Top investing strategies from UBS if Iran-Israel geopolitical woes flare

Instead of exiting stocks in case Middle-East crisis flares up, analysts at UBS suggest investors look for alternative strategies to improve the resilience of portfolios and be positioned for rebounds

Stock market
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Puneet Wadhwa New Delhi
Reports of Iran – Israel conflict last week dented global markets sentiment last week. Over the next few days, analysts say that the global stock and commodity markets will be eyeing geopolitical developments before charting their course.

Meanwhile, the US House has passed a bill over the weekend that will provide $60.8 billion for Ukraine. This will include replenishing supplies of US-made weapons and ammunition.

Another bill that will provide around $17 billion in direct military aid for Israel, and over $9 billion in humanitarian aid for Gaza and other war-impacted regions have also been approved.

Panic selling

Going ahead, if geopolitical tensions between Iran and Israel escalate significantly, analysts believe that there will be a risk of panic selling and increased volatility across global stock markets. Moreover, the markets, especially the Indian stock market, will be keeping a close eye on the fluctuations in crude oil prices, as geopolitical events such as the Iran – Israel conflict frequently impact them.

That said, analysts at UBS suggest investors do not panic and sell stocks or exit the stock markets even if tensions due to the geopolitical events such as Iran – Israel conflict escalate. While stock market experts do not rule out volatility in the global stock markets in this backdrop, they expect such choppy movement to be short-lived.

“We would caution against exiting markets in response to flare-ups in international conflicts. Barring a serious disruption to oil supplies or trade routes, which remains a risk, the effects of such episodes has tended to be short-lived,” wrote Mark Haefele, global wealth management chief investment officer at UBS in a recent coauthored note.

Since the attack on Pearl Harbor in 1941, the UBS note said, the S&P 500 index has been higher two-thirds of the time 12 months after the start of a crisis. Half the time, markets have only taken a month to recover, according to their analysis.

Where to invest?

Instead of exiting the stock markets in case the geopolitical situation between Iran and Israel flares up, analysts at UBS suggest investors look for alternative strategies to improve the resilience of portfolios that enable them to participate in market rebounds.

“We continue to highlight long positions in Brent crude oil as the preferred option for hedging against a further escalation. Allocations to gold and US Treasuries could also help protect against adverse outcomes,” Haefele wrote in the coauthored note.

These assets, UBS said, are also well supported by fundamentals and so should also deliver positive returns going ahead. Investors seeking smooth returns can also consider structured strategies, UBS said, which could enable them to retain exposure to further potential gains in stocks while reducing sensitivity to a correction.

“We also like macro hedge funds, which should be well positioned to capitalise on a turn in the interest rate cycle and help investors navigate geopolitical shifts. Finally, systematic allocation strategies can provide an additional risk management element, by significantly adjusting a portfolio equity allocation in response to changing economic and market trends,” the UBS note said.

Key technical levels for Nifty, Nifty Bank index

Meanwhile, as per the technical charts, the Nifty 50 index has managed to hold on to its 100-day moving average (DMA) for now and make a smart recovery from the lower levels at 21,777. For the Nifty 50 index, 22,300 will be the first hurdle, while 22,525 will be the next hurdle, technical analysts suggest.

“If the Nifty 50 index slips below 22000 levels, then 100-DMA (around 21,700 levels) will be the next support level. The Nifty Bank index also showed strength from the lower levels at around 46,500 and successfully closed above 50-and 100-DMA. For the Nifty Bank index, 48,200 levels will be the first hurdle, while 48,700 will be the next hurdle. If it slips below 46500 levels, then 46,000 will be the next support level,” said Pravesh Gour, senior technical analyst at Swastika Investmart.

On the derivatives front, the long exposure of FIIs in index futures stands at 35 per cent, whereas the put-call ratio is sitting at the 1.03 mark, suggesting a bullish bias, Gour added.

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First Published: Apr 22 2024 | 9:47 AM IST

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