The US could be seen as a safe haven for both bond and equity investments if the Middle East crisis ...
The US could be seen as a safe haven for both bond and equity investments if the Middle East crisis leads to war.
High oil prices combined with the threat of war in the Middle East is already leading global fund managers to be negative on Asian markets and more positive on the US, particularly Treasuries.
Richard Urwin, head of strategic research at Gartmore, says: "If it was known for certain there would be a war in the Middle East, investors would look to get out of equities and all equity markets would go down."
Nigel Morgan, economic strategist at Old Mutual Asset Managers, agrees: "As people become more anxious I would expect them to favour developed markets over emerging markets and bonds over equities."
Urwin says the US could be seen as a safe haven, causing the dollar to rise and leading to a rally in US Treasuries.
He says: "If war was a certainty, then the best place to put money would be into short-dated US Treasury bills."
Morgan says in light of the combined issues of the Middle East and high oil prices, asset allocation over the next six months will be difficult.
He says: "This will not be to an extreme degree and after six months, I expect a return to normal and a swing back to growth."
Morgan points out that people are already becoming more risk averse and the market is feeling its effects, with a certain amount of correction already having taken place on Nasdaq.
However, Urwin argues that this correction is limited and the crisis itself has had little impact on world markets.
He says: "On a couple of days over the past month, the Middle East crisis has had some effect but if there is no war, then this issue is irrelevant to the markets."
Over the month to 20 October, the FTSE All World index fell 2.16% in sterling terms, while the Dow Jones was down 5%.
However, the FTSE All Share rose 0.63% over that period as did one of Asia's major markets, the Hong Kong Seng, rising by 3.41% in sterling terms.
Yet high oil prices on top of the Middle East crisis have also lessened the short-term attractiveness of Asian markets.
The oil price has been rising for over 18 months to a scale which rivals the 1970s, says Morgan, noting the effects of this have not yet been fully felt.
The oil price rise has led to a global rise in inflation at around 1% this year. The biggest rise in inflation has been where the currency has been weak and least where it has been strong, such as the UK.
Urwin points out that if the price continues to rise, those regions more dependent on oil would be more affected than the less dependent regions, therefore it would be expected that Asia would be worse off than Europe.
He says: "In periods were all equity markets go down, it tends to be the fringe markets that go down more, Asian markets would be being hammered more than European markets."
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