“The Chinese do not have a word for crisis. What they do have, however, is a two-word idiom: crisis equals danger and opportunity.” (Bennett Goodspeed)
After the US and Israel launched airstrikes on Iran on February 28, killing the country’s supreme leader, investors began scrambling to reprice risk. With the Strait of Hormuz nearly at a standstill and Brent crude surpassing $112 a barrel, the repricing has been quick and severe. The S&P 500 has experienced four straight weeks of losses, dropping around 5.5%. South Africa’s JSE All Share Index has entered bear market territory, falling more than 10%, with resource stocks bearing the brunt of the sell-off.
No clear end in sight
President Trump has publicly claimed negotiations are underway, but Iran denies this. Meanwhile, the Pentagon is reportedly preparing ground force deployments, and speculation is growing that the US may attempt to seize Kharg Island, Iran’s major oil export hub, as leverage. These signals point to a conflict that could become prolonged.
The significance of this for inflation cannot be overstated. Rising oil and gas prices impact prices across the global economy. That puts the Federal Reserve and other central banks around the world in a difficult position, having to balance slowing economic growth with renewed inflation pressures. Markets are already pricing in a 50% chance of the US Federal Reserve increasing rates by October.
As a net oil importer, South Africa’s economy could take a big hit, reversing its recent economic progress. After months of buying SA assets at scale, foreign investors have already sold a record R41.3 billion in government bonds in a single week.
The surprises hiding in plain sight
Two market responses have caught investors off guard. The first is gold’s 10% decline, its worst performance in four decades. Rather than rush into gold in search of its safe-haven status, analysts say investors are selling their most liquid assets, including gold, to raise cash and cover losses elsewhere.
The second surprise is the dollar’s resilience. Despite growing debate about the erosion of the dollar’s reserve status, compounded by Iran’s insistence that oil moving through the Strait of Hormuz be settled in yuan, the greenback has continued to strengthen. It seems that in a crisis, old habits die hard.
What should investors do?
- Resist the urge to sell. History indicates that markets tend to bounce back from geopolitical shocks as long as fundamentals remain strong. South Africa’s fiscal consolidation story hasn’t changed overnight.
- Revisit your inflation exposure. Stagflation erodes the real value of fixed-income assets. Consider investing in assets with pricing power and inflation-linked returns.
- Tread carefully with commodities. While the squeeze on oil supplies benefits producers like Sasol, precious metals have shown that even traditional safe havens can disappoint during crises.
- Maintain liquidity. Keeping cash on hand or investing in money market funds gives investors the flexibility to act when markets stabilise.
- Look past the noise. Some contrarian investors are already buying South African government bonds as they weaken, citing the country’s credible central bank and improving fiscal outlook. Investment opportunities emerge, even during the most severe crises.
Uncertainty at this scale can feel unbearably uncomfortable. But as history has shown, wars end, supply chains adapt, and markets re-rate. The best way to get through it is to ensure your investment portfolios are resilient enough to ride out the war, however long it lasts.
*All facts and figures accurate at time of writing.
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