Risk Returns
All eyes turn to the Middle East as conflict in Yemen stands as a stark reminder of the one sided nature of the geo-political risks to asset markets. Higher oil and gold prices, and lower share markets, are the inevitable result of the return of risk as the potential for armed conflict escalates.
Just as the former USSR and the USA played out their enmity in third party theatres of war, Yemen is shaping up as a proxy for the bigger players. The Saudi associated Sunnis are hardening their stance against the Iranian backed Shi’ites, and Yemen is the loser. Global investors are increasingly nervous, especially in light of multiple share market peaks. Futures markets are pointing to a benign start to the trading day for most markets, and gains in Japan, but this could reverse as investors re-assess the possible. Any movement of ground troops would likely see renewed selling.
Energy shares may receive further support today after yesterday’s trend defying rise. China will release a read on industrial profits, but the regional focus will likely be Japan. Inflation data and retail sales numbers for February will speak directly the success or otherwise of the “three arrows” stimulus program, and the likelihood of further central bank and government action.
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Frequently Asked Questions about this Article…
The conflict in Yemen highlights the geopolitical risks that can impact asset markets. As tensions rise, we often see higher oil and gold prices and lower share markets, reflecting investor nervousness and the potential for armed conflict.
Oil and gold prices tend to rise during geopolitical conflicts like the one in Yemen because investors view these commodities as safe havens. The uncertainty and risk associated with conflict drive demand for these assets, pushing prices higher.
Geopolitical risks, such as the conflict in Yemen, can lead to lower share markets as investors become nervous and reassess their risk exposure. This can result in selling pressure and market volatility.
Energy shares may receive support during conflicts like the one in Yemen due to rising oil prices. As oil prices increase, energy companies often see improved profitability, which can boost their share prices.
Futures markets can provide an early indication of how investors expect markets to open and react to geopolitical tensions. While they may point to a benign start, any escalation in conflict could lead to rapid reassessment and market reversals.
Japan's economic data, such as inflation and retail sales numbers, are important as they provide insights into the effectiveness of the country's stimulus programs. This data can influence investor sentiment and expectations for further central bank and government actions.
Conflicts like the one in Yemen often serve as proxy battlegrounds for larger global powers, such as the USA and former USSR during the Cold War. In Yemen, the Saudi-associated Sunnis and Iranian-backed Shi’ites represent the interests of bigger players, adding complexity to the geopolitical landscape.
Investors should monitor developments in geopolitical hotspots like Yemen, as any movement of ground troops or escalation could lead to renewed market volatility. Keeping an eye on commodity prices and economic data from key regions like Japan can also provide valuable insights.
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