With the global geopolitical sphere in flux at the moment following the US attacks on Iran, the folk at UBS have helpfully looked back at how the Australian market has fared in times of crisis.
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Keep calm and carry on
Overall, they say, investors should have little to fear, with the local market tending to perform well in the months following disruptions.
As they wrote in a note to clients today:
Tracing back over 15 previous geopolitical shocks that have occurred over the last 50 years, we find that the impact on the Australian equity market is not much, with the market up 4%, 5% and 11% over the subsequent 3, 6 and 12 months respectively. In fact, with the exception of the first Gulf War, geopolitical shocks tend to have had no real lasting negative impact. It is also worth noting that Australia is a net exporter of Energy due to its large LNG export earnings. So higher energy prices would be a headwind to the consumer via petrol prices, but in theory the overall economy could be in a wealthier position.
Sectoral winners
So what about sector by sector? According to UBS, it's clear that mining and energy companies tend to outperform in times of instability, while insurers underperform.
They added:
Right now miners map most neatly with a fundamental view we have held since late last year. That being that miners have not just outstanding earnings momentum at play, but benefit from the structural diversification out of the US, as well as investment flows rotating away from AI risks.
They have also moved industrial stocks to an overweight sector recommendation.
They added:
The sector not only screens best on our sector tracker screen, but showed a good story through results owing to solid (and stable) end demand in their Australian businesses. The sector is also positioned as a relative 'safe haven' for investors looking to detach themselves from global uncertainties. Real Estate moves underweight on rate concerns, whilst Banks move up to Neutral on the prospect of further earnings upgrades.
UBS has moved energy from an underweight rating to neutral, "to neutralise exposure to the likely blow up in oil and gas prices if the conflict is prolonged''.
UBS said overall the recent reporting season was strong, albeit with a few themes which caused disruption, such as the "AI rout", as companies whose business models were potentially at risk of disruption were sold down.
UBS says some of these sell-offs "probably look overdone".
