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The Asset Class: John Stopford · Strictly Business

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  You're listening to Strictly Business Podcast with Lindsay Williams.
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  We knew it was going to happen, it has happened, but the trick now is to work out
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  what's next.
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  I'm talking, of course, about the Iran invasion by Israel and the United States
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  of America.
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  With me from 91 in London is head of multi-asset income, and that's John
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  Stockford.
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  John, we did know it was coming because of the build-up of the ships all around that
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  region.
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  but as I said The reaction of the markets was fairly predictable, but how much more
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  predictability will there be?
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  It's suddenly a little bit more uncertain than it was right at the beginning.
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  Yeah, I think that's true to an extent.
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  I mean, I think we are quite used to sort of geopolitical shocks that have a market
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  impact and then,
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  you know, they tend to fade with time.
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  This one, though, I think people maybe were expecting it.
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  to be over after a day or so.
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  So rather like the sort of Venezuelan operation.
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  But actually, it sounds as though it may go on for a bit longer.
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  I think Iran has more to throw back than Venezuela did.
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  And they obviously have proxies and so forth.
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  And so I think there's a sense that they want to, you know,
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  finish or at least finish the job to a level that they can declare victory or
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  Trump can declare victory.
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  And walk away.
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  And clearly, it's escalated to some extent in terms of drawing in, you know,
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  neighbors.
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  And there are question marks about, you know,
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  how long aerial defensive systems can continue to repel missiles,
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  given there's a limited supply of defensive missiles.
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  So yeah, I mean, I think there's a lot of uncertainty in the market.
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  So at the moment, the market's repricing for that.
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  But But I guess at some point we would still expect it to be.
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  you know, the market will settle down and then reverse and probably get most of the
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  way
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  back to where it started in a few months.
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  One of the things you can do, of course,
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  is put up a giant graph in your office and you can show geopolitical events and
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  overlay the
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  performance of the market.
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  And what you'll invariably see is geopolitical event number one market dips
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  and then either rapidly rises or rises back
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  over a period, but then goes higher.
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  And that will happen, I suppose.
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  But it's a question of how quick it's going to be and how deep the little dip is
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  going to be.
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  And it's interesting because it's suddenly got a bit worse with the Nasdaq down a
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  couple of percent and oil prices having shot up another
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  7% to around $83 a barrel.
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  And this is the thing.
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  Every single report I read, hastily put together probably, is focusing on the
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  Strait of Hormuz.
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  And that really is very important because it's 20% of the world's energy goes
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  through there.
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  And if oil goes to, I don't know, 90 to 100 for a while, then the Fed and all the
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  other central banks might have a little bit of a
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  problem.
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  Yeah, again, I think that's right.
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  So it's not just oil.
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  It's also liquefied natural gas, which, you know, is important across the world,
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  particularly as a sort of feedstock for electricity.
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  And so, you know, the price of that shot up too.
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  The big buyers there are Asia and Europe.
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  Europe obviously no longer can get.
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  its gas easily from its neighbour in Russia.
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  So, you know, you're sort of seeing, I think,
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  a bigger risk premium being built into European stocks, Asian stocks, and so on.
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  US also, but I think there are winners and losers.
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  So defence stocks, energy stocks, etc.
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  And we've obviously seen some backing up in bond yields, which reflects, you know,
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  concerns about a lasting boost to
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  inflation.
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  Again, I think typically these things get overdone.
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  For us, I think it's more about what was the situation before this happened?
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  How long is it going to last?
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  And how much of it in the impact might be lasting.
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  But generally, I think focus on looking for opportunities that get created by this
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  either things
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  that have sold off too much, or things that have rallied, you know, quickly and
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  maybe too far that are So.
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  in line with the thesis that you had to start with.
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  And there we're sort of focused, I think, on, you know, what's happening in terms of
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  global activity,
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  what's happening broadly in terms of global inflation rates.
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  But in particular, we came into this pretty cautiously position because we
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  think a lot of
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  equities in particular and corporate bonds have been priced for no risk and
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  perfection.
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  And maybe this is a reminder that there is a bit of a risk, but we think there are
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  other bigger risks out there in terms of
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  you know valuation of of ai in general sort of speculation across a range of
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  markets and so we're we're
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  sort of thinking more about how we want to be positioned for that in the medium term
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  and then we'll see what opportunities
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  this noise or volatility gives us.
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  That's not to diminish its importance for people in the region, but in terms of
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  market impact,
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  our central view is it's unpleasant, but it won't last.
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  Exactly.
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  The unpleasantness is going to make a comment that you're now probably from the
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  school of the big chart on the office wall saying this is what happened last time.
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  There was a similar geopolitical event down and then up again.
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  It's also interesting you use the phrase priced to perfection,
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  because this might be a kick in the backside for the markets to say it's not
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  perfect,
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  there'll be a bit of a sell-off and that will give people the chance to sort of
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  recalibrate and say, yeah, they were too risky up there.
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  The line of least resistant was to the downside.
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  And we got the excuse to sell off given to us by the Iran situation.
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  But you're lurking in the wings, are you, at 91?
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  Yeah, I would say so.
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  So as I said, we were fairly defensively positioned.
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  So net-net, we're probably looking for opportunities to buy weakness in bonds and
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  to a lesser extent in
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  equity markets.
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  And I guess, you know, we're not rushing in because it does look like this might
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  last a week or two or possibly a month.
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  We don't think it can last too long just because, you know, there is, I think,
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  a limit to the level of defense that the Gulf states and Israel and the US can
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  maintain.
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  And, you know, Trump's going to want to declare victory and they're not going to
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  want to go down the sort of forever war route.
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  I think, you know, that was something that he was pretty clear on when he ran for
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  office.
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  So he's talked about four or five weeks and some things are happening, you know,
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  on a faster timeline than they expected.
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  So our best guess is it probably isn't over in a week.
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  The other thing that might curtail it is if the stock market really starts to move
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  or the bond market really starts to move.
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  You know, we've seen that there's limited appetite in the White House for economic
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  pain.
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  And so, yeah, that could be another thing.
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  So I think the Iranians are going to want to hold on and not see a regime change, I
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  think,
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  and hope they can outlast Trump.
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  Trump's going to want to basically neutralize them as far as possible and
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  then declare victory.
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  And so we may end up in a position where, you know, it's the same regime in power,
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  but with less ability to project.
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  And Trump saying...
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  job done, whether the Israelis and others agree with that, we'll wait and see,
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  and what it means for the longer term stability in the Gulf and so on again.
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  But I think for major markets, we're all waiting for, okay, Trump to declare
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  victory, essentially.
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  Yes, there is the chance, of course, that there's going to be a struggle, a power
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  struggle that could go on for quite a while in Iran.
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  I'm talking about politically now, maybe there's someone coming in to continue with
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  this strong arm sort of regime,
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  and they...
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  crack down even more than they have been doing so quite recently.
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  They threaten the West with the Strait of Hormuz being blocked or tankers being
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  firebombed or whatever it is that they're going to do.
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  And there also could be a power struggle with other factions within the country.
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  So also instability.
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  And markets don't like instability, certainly not in that region.
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  And one other thing I have to ask you, do you ever think that maybe the Trump allies
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  in the Middle East,
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  some say you get fed up with him and Netanyahu and say, We're not allies with
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  Israel.
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  We're fed up with your golf courses and your crypto ventures and your wars.
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  And we're going to go back to our roots.
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  There's lots of things out there for conspiracy theorists.
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  Yeah, I mean, I think there are a lot of moving parts.
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  And these things are easier to start than to, you know, end in a way that you plan.
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  I guess we tend to take the view that, you know, the regime is pretty well embedded.
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  There's opposition, but it's not.
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  necessarily joined up.
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  And there is a power structure that is quite repressive.
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  And to some extent, Trump, I don't think is particularly interested in democracy,
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  if you look at what happened in Venezuela.
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  So, you know, I think he'd be quite happy if either the existing regime or, you
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  know,
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  some internal coup happened,
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  and you end up with an autocratic set of leaders with whom he feels he can do a
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  deal.
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  You know, I think he'll be looking to say, OK,
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  in exchange for not pursuing your nuclear ambitions and not projecting terror in the
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  region,
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  you know, we'll start to relieve sanctions, etc.
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  So I'm cynical.
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  He's particularly interested in the welfare of the Iranian people.
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  I just think he's keen to do to do a deal.
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  That's what he does.
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  Whatever that deal may be.
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  A very final question.
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  At what stage do you as head of multi-asset income at 91 in London sit
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  down with the team and say, wait a second, this is getting serious.
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  The oil price has now averaged 87 over the last three weeks.
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  It doesn't look as though it's going to end.
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  Oil is going to potentially go to 100.
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  There's only three months worth of stocks worldwide.
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  So inflation is going to start to rise and you sit down and you do a bit of shifting
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  in your portfolios.
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  Yeah, I mean, as I said, we're relatively defensively positioned, so we can add
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  risk.
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  So I think we're in quite a good place to be.
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  I would say, in addition, fortunately,
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  we went into this with the world fairly well supplied with oil and also, you know,
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  OPEC willing to sort of continue to step up production.
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  Although obviously that's to some extent impacted by the potential or the actual
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  closure of the Straits of
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  Hormuz.
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  So it's not.
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  entirely straightforward.
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  China, you know, for what it's worth, they've got about 100 days, I think, of
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  oil in reserves.
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  They've been very diligent in building reserves.
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  So, yeah, I mean, I think it's the longer it drags on, the more damage it will do.
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  But our base case is the US doesn't want a ground war like Iraq.
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  And even in the case of Iraq, you know, you did have fairly quickly, oil went up a
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  long way,
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  but then it did come.
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  back most of the way.
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  So, you know, it was probably the first three to six months, you know, the Ukraine
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  invasion, actually,
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  that was a pretty short lived impact on energy prices, it was pretty severe, but
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  it was pretty,
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  pretty short lived, and so on.
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  So I think, you know, history suggests that these things are painful,
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  but they're probably an opportunity to look for things that are hit hard, unless
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  something, you know,
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  really Thank you.
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  has changed that is material but i think in many cases you shoot first and ask
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  questions later i think uh
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  you know that's in most cases i mean clearly you were asking about the gcc
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  whatever the the gulf you know i think business models there
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  might be more permanently damaged or at least temporarily damaged in terms of
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  people's
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  willingness to fly with those airlines holiday there and live and work in the
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  region that's definitely something and that's a
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  consideration I think, for those countries.
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  But also, yes, they're probably going to.
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  want to put pressure on Trump to make this quick.
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  But they probably also don't want Iran to be left with an offensive capability,
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  given it's shown its capacity to fire at its neighbours.
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  So yeah, we shall see.
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  It's unpleasant, but it's fascinating.
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  And thanks very much for walking us through it.
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  John Stockford is head of multi-asset income at 91 in London.
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  The views and opinions expressed in these podcasts are those of Lindsay Williams and
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  various contributors.
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• 12:44
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• 12:54
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• 12:56
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• 13:00
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