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Following Iran retaliation, investors seeking safety will boost gold and US Treasury bonds: UOB

Jovi Ho
Jovi Ho • 2 min read
Following Iran retaliation, investors seeking safety will boost gold and US Treasury bonds: UOB
File photos of Israeli tanks. Photo: Bloomberg
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In retaliation to Israel’s airstrike on the Iranian consulate in Syria on April 1, Iran launched more than 300 ballistic and cruise missiles, as well as attack drones, at Israel on April 14. The vast majority of missiles and drones were intercepted by Israel and its allies. 

Even though the damage was minor, the attack raised concerns of broader and deeper conflict in the Middle East, say UOB analysts in an April 15 note. 

According to UOB Investment Insights, the most immediate impact is higher oil prices due to the risk of oil supply disruption from the Middle East. 

However, oil prices slipped lower on April 15 after Iran’s attack proved to be less damaging than anticipated. Brent futures for June delivery settled at US$90.10 a barrel, down 35 cents, or 0.4%. US crude futures for May delivery fell 25 cents, or 0.3%, to end at US$85.41 a barrel.

Investor caution has risen and market volatility is expected in the short term, say UOB analysts.

Should Iran block the Straits of Hormuz, it could potentially choke off 21 million barrels a day or approximately 21% of the world’s consumption, they add.

See also: Markets weigh up risk of retaliation-cycle after Iran hits Israel

In addition, investors seeking safety will initially boost the price of gold, US Treasury bonds and support the US dollar, according to UOB. “A sharp increase in oil prices could reignite expectations of inflation and see rate cuts postponed. However, risk aversion is likely to be short-lived and market sentiment is expected to stabilise if the conflict does not escalate.”

UOB advises investors to consider bond funds and investment-grade bonds that can stabilise portfolios during market volatility. “They also pay attractive yields and can offer potential capital appreciation when central banks start to cut interest rates later this year.”

For risk-taking investors, UOB also suggests they consider tactical ideas in global healthcare, Asia ex-Japan and Asean. “Accumulate quality growth and dividend-paying stocks when they are cheaper.”

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