A two week long war has turned the macros of several countries upside down. By blocking a critical shipping route, Iran has achieved what the best armies cannot have done. Essentially, economic disruption is the new weapon of mass destruction.
Strait of Hormuz, the critical passage for oil, gas, fertilisers and food has been blocked for days on end. This caused unprecedented impact globally as prices of commodities spiked sharply. Shortages in critical products caused high anxiety around the world leading to a scramble to hoard them in preparation for an eventuality of a stock out. As a result, fears spiked around the world and prices rose immediately. Inflation is now real and rising.
Clearly, this inflation is going to hurt Nations just when they were least prepared for it. Shortages in fuel, LPG, fertilisers and food are threatening several governments with potential civil unrest. We are seeing rapid governmental response to control the hoarding, restore supplies and keep public confidence stable. The end of the war, or atleast a temporary truce leading to the complete opening of the Strait of Hormuz for all ships is the need of the hour. But. We don’t have clear visibility of that happening.
This has caused panic in markets across the world leading to a broad-based crash in asset prices. Indian markets are seeing all negatives coming together at the same time. Sovereign wealth funds, usually a stabilizing force in our markets during panic, have turned aggressive sellers this time. Their selling is in preparation for the economic needs of their own countries during and after the war. Flight of capital is hurting the currency badly. We are seeing oil, industrial fuel and petrochemical prices shooting up sharply with shortages getting built very quickly. Fear is everywhere and nobody is sure when this uncertainty will end.
The resulting volatility is something we haven’t seen in a while. While the events unfolded very quickly and shook the investment world badly, they could also settle fast and restore sanity to the markets. This is a fast paced scenario and the window of volatility could well be a great opportunity to invest. One needs to climb a steep wall of fear to participate and profit from this opportunity. But, the rewards for doing that will be ample.
