SINGAPORE (Jan 10): Simmering tensions between the US and Iran have spilt over into a war of words and some missile strikes, one of which killed an important Iranian general. The US says no one was killed. So far, these exchanges have resulted in a knee-jerk spike in oil prices and some volatility in equity markets. But this did not last in the face of tepid oil demand and the US presidential cycle.

“In our base case of no major military escalation, the effects on economies and earnings on a global scale should be minor. Hence, we maintain our overweight positions on global and US equities. Outside a severe disruption scenario, we do not believe that oil prices can sustain at current levels,” says Kelvin Tay, Regional Chief Investment Officer Asia-Pacific at UBS Global Wealth Management.

Tay may have a point. Over the past five years, the S&P 500 Index has outperformed West Texas Intermediate by 30% (See chart 1).

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