The Middle East and Markets

Author: Phillip

Geopolitical tensions and conflicts can be deeply unsettling, the recent escalation involving the US, Iran and Israel being no exception. The human consequences are tragic, and naturally the headlines can cause investors to worry that financial markets may follow a similarly turbulent path.

The most important message for long‑term investors is, as always: staying invested, staying diversified, and avoiding reactive decisions remains the most effective strategy, even in moments like these.

Market response has been muted

Despite dramatic headlines, global markets have shown remarkable resilience. Since the start of the latest escalation on 28 February, major equity indices have moved only modestly. In fact, global equities were still positive year‑to‑date in GBP terms as of the 10^th of March.¹

Markets price probabilities, not headlines. Investors care about whether events will meaningfully change economic fundamentals. Things like global growth, company earnings, interest rates, supply chains or energy prices. So far, markets appear to be treating the situation as a geopolitical shock rather than something which will have a lasting impact. While energy market disruption will certainly affect economies around the globe, whether this will become structural remains to be seen.  

Volatility Is Normal—And It Isn’t the Same as Crisis

Some measures of market uncertainty have risen, the VIX (or “fear gauge”), which measures market volatility recently ticked up to around 30 from a long‑term average near 19, before swiftly falling to the mid 20s. This remains far below levels associated with deep stress, such as the spike to over 50 seen during last year’s tariff‑related turmoil.²

History shows that markets often experience short‑term volatility during geopolitical events, but these movements rarely alter long‑term outcomes. Every single year, markets experience temporary declines, in many cases 10% or more, yet long‑term investors have consistently been rewarded for staying the course.

As the chart above shows, market drops happen every year. Sometimes these are minor, sometimes significant, but the market has always rebounded. Even severe lurches can happen within years that turn out to be positive (you will all remember the pandemic panic of 2020). So far, in comparison, this year seems reasonably tame.  Sometimes it is important to remember that volatility is not a malfunction, it is the mechanism by which long‑term returns are earned.

Diversification Is Doing Its Job

Well‑constructed portfolios are designed specifically for moments like this. Recent data³ shows that:

• Value stocks, small‑cap equities, emerging markets and property have all contributed positively year‑to‑date³.
• High‑quality short dated bonds have also held up well, providing stability while equities wobble.

No single region, sector or asset class dominates outcomes. This is exactly how diversified portfolios are built to behave.  Cash reserves too play an instrumental role in a successful financial plan. Keeping enough cash back to meet short to medium-term capital and expenditure requirements avoids the need to sell down investments in volatile times, giving them time to recover.

Trying to Time Markets Is a Risky Strategy

Periods of uncertainty often tempt investors to “do something”, whether selling investments in anticipation of worse news or trying to time a recovery. Yet history is unambiguous: Investors who remain disciplined, diversified and patient have historically been rewarded with returns well above inflation over time.

Markets adjust extremely quickly. By the time a headline appears, prices have usually already moved to reflect it. Attempting to outguess this process means competing with millions of other investors, all acting on the same news and expectations.

More importantly, selling during periods of fear often means locking in losses, while missing subsequent recoveries that typically occur before the news flow improves. In the past couple of days, Trump has signaled that the war with Iran may end “very soon” to which markets and oil prices have responded positively. Yet with Trump’s track record of inconsistency and parties such as Iran, Israel and many other Middle Eastern players potentially having different ideas, who would want the headache of staking their financial future on trying to time the market?  

A Sensible Outlook for Investors

We cannot know how the conflict will evolve in the coming weeks, but we do know this:

• Markets have absorbed shocks like this many times before.
• Diversified portfolios, including cash reserves, are built to withstand uncertainty.
• Staying calm, disciplined and long‑term focused has historically delivered successful outcomes.

Risk warnings

This article is distributed for educational purposes for UK residents. It should not be considered investment advice, an offer of any security for sale nor a recommendation of any particular security, strategy, platform or investment product. This article contains the opinions of the author but not necessarily the Firm. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

¹As measured by the MSCI All-Country World Equity Index

²CBOE Market Volatility Index

 ³Data source endnote: 

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