Traditional safe-haven assets such as gold and government bonds could see a rise in demand owing to the recent surge in oil prices, according to Nigel Green (pictured), CEO and founder of the deVere Group.
Tensions in the Middle East and North Africa have led oil prices to approach $79 a barrel for Brent Crude and around $73 for West Texas Intermediate, which Green warned will have broader economic implications on individual sectors within investor’s portfolios.
“Global investors need to take seriously the volatility in oil prices due to their direct influence on inflation, as rising oil prices can lead to increased production costs across various industries, affecting corporate profitability and economic growth,” Green said.
“Additionally, oil price fluctuations can create market volatility, influencing the performance of energy-related stocks and sectors, making it crucial for investors to monitor and perhaps adjust their portfolios in response to these changes,” he added.
Given that tensions in the Middle East introduce geopolitical risks that can significantly impact market sentiment, Green said investors often respond by reassessing risk tolerance and adjusting asset allocations.
“Safe haven assets, such as gold and government bonds, could experience increased demand as investors seek refuge from market volatility,” he said.
In terms of equity exposure, Green noted currency fluctuations and emerging market vulnerabilities will also be in sharp focus.
“Rising oil prices can contribute to currency fluctuations, particularly affecting economies heavily dependent on oil exports,” he said.
“For investors with exposure to emerging markets, currency devaluations may pose risks to their portfolios,” he added. “Countries with large external debt denominated in foreign currencies may face challenges servicing their debt obligations, potentially impacting the performance of assets tied to these economies.”
