Up next in 10
Markets have been in free-fall since the outbreak of the war in Iran, with billions wiped off of institutional and retail investors' portfolios.
With a ceasefire still looking uncertain, how should people be managing their money and who are the winners and losers of the conflict?
City AM's Investment Reporter, Maisie Grice, spoke to Emma Wall, Hargreaves Lansdown's Chief Investment Strategist.
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0:00
Markets have been in free fall over the
0:01
last month as the Iran war sent stocks,
0:04
bonds, and gold spiraling.
0:06
Investors have been rushing to and fro
0:08
from the market each day as the Strait
0:10
of Hormuz remains closed and potential
0:12
ceasefire still seems some way off,
0:15
leaving investors grappling on how to
0:16
allocate their portfolios. Now, Trump
0:19
has claimed the US will leave the region
0:21
in the next few weeks, stating the
0:23
opening of the Strait is not the US's
0:25
problem.
0:26
But what does this latest development
0:27
mean for markets and investors? Here to
0:29
discuss it with me is Emma Wall, Chief
0:31
Investment Strategist at Hargreaves
0:33
Lansdown. This has been such a volatile
0:35
time for markets and
0:37
I'm really, really intrigued in what you
0:39
think today's movement, where
0:40
everything's gone into the green cuz
0:41
Trump's made this announcement, means.
0:43
Is this another short-term
0:45
kind of feeding frenzy or is this a sign
0:47
that maybe things are starting to
0:48
improve? I think, if you'll allow me,
0:50
it's a bit of both.
0:51
Cuz what we've seen over the last month,
0:53
as you're right, is sort of, you know, a
0:54
normal market market cycle is 5 to 7
0:56
years. We've had almost like 24-hour
0:58
market cycles in terms of you know, risk
1:01
on, risk off. The difference this week
1:03
is I do think there has been a change in
1:05
the rhetoric.
1:07
So, the big Although the US has been,
1:09
you know, not exactly easy to pin down
1:12
on the reasons why it's gone into Iran,
1:14
we have seen in the last few days very
1:17
much a change in the language on kind of
1:19
what a win would mean.
1:21
And we're expecting this announcement
1:23
from Donald Trump 9:00 p.m. Eastern
1:25
time, um you know, tonight, which would
1:27
be 2:00 a.m. UK time tonight. So, by
1:30
tomorrow we should have a bit more um
1:32
clarity. But what we're expecting from
1:34
that is that the US will finally put
1:37
some foreign policy behind the kind of
1:40
social media rhetoric of the end what
1:43
would could be the beginning of the end.
1:45
And markets love optimism. They like
1:46
certainty and so it's not a surprise to
1:49
see over the last 24 hours that markets
1:51
have really latched onto this prospect.
1:53
What I would say is the volatility is
1:55
unlikely to go away and although equity
1:58
markets love to kind of trade on
2:00
euphoria, that doesn't necessarily mean
2:02
that you're going to get the same
2:03
immediate reaction from bond markets and
2:05
commodity markets.
2:06
>> Mhm. I like the point that you made
2:07
there regarding Trump's comments and
2:09
that kind of angle of it all because I
2:11
think like even from the start of the
2:12
year, these kind of comments on Truth
2:14
Social and across Twitter and other
2:16
areas,
2:17
you know, have sort of fed
2:19
investors' actions at quite a lot more
2:21
than I would say maybe like 5 years ago.
2:23
It's you know, it's a really intriguing
2:24
time. So, I'm really interested on your
2:27
part to know how is that sort of change
2:28
how investors react, especially in this
2:30
sort of Iran war situation? Yeah, so
2:31
there's a couple of things there. You
2:33
know, obviously Iran is the most acute
2:35
example of this at the moment, but as
2:36
you correctly identify, there has been
2:39
kind of foreign policy in terms of the
2:40
US-China relationship that's played out
2:42
on Truth Social. A lot of his liberation
2:44
day announcements were first teased and
2:47
then kind of capitulated over Truth
2:49
Social. You know, a lot of his uh plans
2:51
around um the pressurizing of uh the
2:55
Central Bank and the Central Bank um you
2:57
know, independence and and you know,
3:00
targeting of Jerome Powell, the current
3:02
chair, again has been through social
3:04
media.
3:05
How we've seen this play out is
3:07
particularly over the last 6 or 7
3:08
months, we've seen volatility, by which
3:10
I mean let's just take the VIX index as
3:12
a sort of proxy for that,
3:14
um routinely trade above kind of 24. And
3:17
24 is, you know, it's it's a you know, a
3:19
number we plucked from thin air, but it
3:21
seems to be the point for us, our house
3:23
view is when you start to really feel it
3:25
in the markets as a kind of retail
3:26
investor.
3:28
And we've seen levels, you know, since
3:30
September over 24,
3:32
that it's just not normal, you know? And
3:34
so, you know, you're right to identify
3:37
actually that
3:38
Trump means more volatility in markets.
3:42
And I do think that after the Iran war
3:44
is I mean I hesitate to use the word
3:45
resolved because actually the Middle
3:47
East is an area that sadly, you know,
3:49
never has complete resolution, but
3:51
perhaps some of the um escalation is
3:53
removed,
3:55
that actually we do see through the
3:57
Trump through the remainder of the kind
3:59
of Trump um lots of opportunity for this
4:01
increased volatility driven by the
4:03
social media rhetoric. Things like the
4:05
midterms, things like Central Bank
4:07
policy when he does get his new chair in
4:09
place, things like inflation, you know,
4:11
foreign policy remains something that
4:14
Trump can execute with or without
4:16
success in the midterms in the house.
4:18
So, there is lots unfortunately
4:21
opportunity for volatility and really
4:23
for investors, for most people, you
4:26
know, boring as it is, the best thing to
4:28
do through this time is absolutely
4:29
nothing and just stay the course. Yeah.
4:31
Yes, of course. I mean that's that seems
4:33
to be the advice from everyone that I
4:35
speak to.
4:36
Do you not give in to these short-term
4:38
headlines and these tweets and these
4:39
gains. Investing is a long-term game.
4:42
And I feel like especially it's
4:43
important to realize that at times of
4:45
extreme volatility, as you were just
4:46
saying. Yeah, I mean if professional
4:48
traders, these markets produce lots of
4:51
opportunities. You know, there is lots
4:53
of opportunities to kind of short um
4:55
sentiment, for example, today.
4:58
But really for retail investors, what is
5:00
investing? It's building long-term
5:02
wealth. It's helping to achieve your
5:03
financial goals. It's 5-year plus. In
5:06
the case of most of us who are, you
5:08
know, saving for retirement through
5:09
workplace pension or a self-invested
5:11
personal pension, it's a multi-decade
5:13
endeavor. Over 10, 20, 30 years, even
5:16
the extremes of liberation day, where we
5:18
saw 9 and 1/2 trillion dollars wiped off
5:21
global markets in 36 trading hours,
5:24
that blip will be hard to find on a
5:25
graph.
5:26
So, it's really important to remember
5:28
actually why you're investing. I mean,
5:31
is your portfolio aligned to those
5:32
goals? Is a really important question.
5:34
So,
5:35
if you have a low risk appetite and all
5:36
you've got in your portfolio is tech
5:37
stocks, now is as good a time as ever to
5:39
review that. But you shouldn't be
5:41
reviewing because of what's going on
5:43
with geopolitics and the market impact.
5:45
You should be reviewing because of what
5:47
your financial goals are and how your
5:49
portfolio is aligned to your risk
5:51
appetite and those financial goals.
5:52
Yeah, I like that point. It's up to
5:54
what's best for you, definitely. And
5:56
then just to keep moving forward a
5:57
little bit more with the Iran war, I I
5:59
don't know about yourself, but I've
6:00
become so familiar now with the Brent
6:02
crude oil chart more than I've ever been
6:03
before because it has been up and down.
6:06
We nearly hit $120 nearly, I believe,
6:08
yesterday. Last time I checked we were
6:09
back around the 100 mark. So, again,
6:11
that has been really volatile because,
6:13
as we were discussing earlier, the
6:14
Strait of Hormuz has been closed. So,
6:16
how
6:17
how No, it's been like that for a long
6:19
time too. But how bad is this looking in
6:21
regards to oil in the UK and the oil
6:23
market and all things there, really?
6:25
Yeah, there's a couple of things I think
6:27
should which would be useful context.
6:29
>> Please.
6:30
This oil shock has been compared to the
6:32
one in the '70s and indeed the one in
6:34
2022 when Russia invaded Ukraine. We
6:37
don't think that that is comparing
6:39
apples and apples in each instance. So,
6:40
take the one in the '70s, for example.
6:43
In the '70s, the US was a net importer
6:45
of oil. Now it's a net exporter. There
6:48
is far more energy independence around
6:50
the world and there's renewables. It's
6:52
small, but if you think about things
6:53
like the production of renewables within
6:55
China, the consumption of renewables
6:57
within Europe, is a very different
6:59
picture.
7:00
So, that's the first thing to note. The
7:02
second one is 2022. One of the reasons
7:05
why we don't think this is comparable is
7:06
because of the wider economic picture.
7:08
So, in 2022 we had interest rates at
7:11
zero.
7:12
So, when we had an oil price shock and
7:14
inflation spiked, the Central Bank had
7:17
to rapidly increase rates as a way to
7:20
sort of counter that inflation that was
7:21
coming through the system. Now we don't
7:23
have rates at zero. We have rates still
7:25
above neutral rate at kind of 3.75. And
7:28
so, actually the ability for monetary
7:31
policy to absorb some of that inflation
7:34
it's it's just greater. So, you don't
7:36
you you can, you know, help to counter
7:38
inflation by holding rates at where they
7:40
are. So, the impact then for like
7:42
people, households, businesses, anyone
7:46
who needs a loan, let's be frank, is
7:48
going to be kind of
7:49
muted versus, you know, prospect of
7:51
waking up and your, you know,
7:53
your interest rate on your loan going
7:55
from 25 basis points to kind of 5%.
7:58
Also, the job market is very different.
8:01
So, if you think about kind of
8:03
5, 7 years ago, the jobs market was much
8:06
tighter, by which it means that when
8:09
inflation started to show up in, you
8:11
know,
8:12
more expensive grocery prices, your
8:14
mortgage rate started going up, people
8:15
were in a position to go into work and
8:17
negotiate a pay rise,
8:19
which although alleviates the individual
8:20
pressure, creates more inflation in the
8:23
system and actually prolongs the impact
8:25
of that oil price shock and then it
8:26
becomes a secondary and a tertiary
8:28
inflation impact. That's not the case of
8:30
where we are today. The jobs market is
8:32
very different. The jobs market is much
8:34
weaker and actually individuals' ability
8:36
to negotiate pay rises, it just isn't
8:39
there. And so, although this is likely
8:41
to cause an inflation impact, we don't
8:43
think the secondary and tertiary impacts
8:45
are there and so therefore the inflation
8:47
impact is likely to be short-lived,
8:49
although obviously going to be quite
8:50
painful. Mhm.
8:52
Yeah, there's a lot there's a lot to
8:52
consider there, really, isn't there? And
8:54
then just just keep with oil here. Um as
8:56
we're speaking right now, Starmer has
8:57
done a press conference around an hour
8:58
ago talking about investing in clean
9:00
energy to sort of, you know, keep keep
9:03
on a smooth level here with the Iran war
9:04
and oil, as you were saying. So, I'm
9:06
really interested. Do you think clean
9:07
energy is something an investor should
9:09
consider having in their portfolio,
9:10
either, you know, not having oil or
9:13
having them both? Where does that How
9:14
does that look? Yeah, it's interesting.
9:15
So, if you have a look at the appetite
9:18
with our investors,
9:20
so we've got 2 million clients, you
9:21
know, it's not every retail investor in
9:23
the UK, but it's a good proxy to how
9:24
people are feeling. We have actually
9:26
seen um purchases of clean energy
9:28
investment trusts increase over the last
9:30
month. There's a couple of caveats here.
9:32
They've got really good yield and so
9:33
sometimes people are just buying it for
9:34
the yield and they were on a good
9:36
discount. So, again, you know, sort of
9:38
sector agnostic, those two things makes
9:40
for quite a compelling investment. But
9:42
we do think that actually people are
9:43
looking at the dependence that you that
9:46
we have as a nation on things that are
9:49
outside our control. Whereas clean
9:51
energy, green energy, renewable energy
9:54
is much more onshore.
9:56
And technically offshore when it comes
9:57
to wind farm in the North Sea, but you
9:58
know, under the UK's um
10:01
dominion, shall we say?
10:02
>> Yeah.
10:02
What we would say is this is still a
10:04
pretty niche area of the market. And so,
10:07
you know, again, back to those boring
10:08
basics, a portfolio should always be
10:10
well diversified. Also, when it comes to
10:12
oil and gas provision, a lot of these
10:14
large companies, although yes, they are
10:17
currently, you know, predominantly oil
10:19
and gas companies, it's going to be
10:21
those companies that will help to aid
10:23
the transition as well. So, they will be
10:26
doing capex in this area, they'll be
10:27
doing R&D in this area. They're likely
10:29
to be part of sort of um
10:32
you know, moving towards a renewable
10:34
future because they're the ones candidly
10:36
that have the cash.
10:37
Um and so, I don't think it's an
10:39
either/or situation. I think it's
10:41
probably a both situation.
10:43
But really, it's not going to be private
10:45
investors and even private markets that
10:47
make make, by which I mean sort of, you
10:49
know, not the public sector, listed
10:51
listed businesses
10:53
um that make this transition. It's going
10:55
to have to be a combination of kind of
10:56
policy and investment to really sort of
10:59
accelerate away from our dependence on
11:01
fossil fuels. Yeah, definitely. And then
11:03
just looking at gold as well because
11:05
last time I checked, it might have might
11:06
have changed this morning, gold fell
11:08
around up on 15%. It's it's really
11:11
been going through quite a shock, you
11:14
know, for a safe haven asset. So, I'm
11:16
really interested in what you think how
11:17
that's looking. What how does gold look
11:19
now? Is it still something that people
11:20
should consider because saying it is a
11:23
safe haven asset, it still it still has
11:24
that, you know, that that pull.
11:26
Yeah. So, I think you're right to
11:28
highlight what's happened in the last
11:29
month, but I'd take it further back than
11:31
that. You know, over the last year and
11:33
particularly over the last 2 years, gold
11:34
has still delivered an exceptional
11:36
amount in people's portfolios.
11:38
Also, a time when equities have been
11:40
doing very well, which is not typical.
11:42
Now, there's a reason why the in the
11:43
last month it has sort of lost its
11:46
shine, if you'll allow me the pun, as a
11:48
safe haven asset. And that's because
11:50
it's not the only safe haven asset. If
11:52
you're looking at how you add balance to
11:53
a portfolio, by which I mean stuff that
11:55
should typically preserve its capital
11:57
when everything else goes haywire,
11:59
you've got a few options.
12:00
>> Mhm. You've got high-quality government
12:02
bonds, T-bills from the US, gilts from
12:04
the UK. Yields have been really good on
12:07
those. Um you know, we we in the UK, you
12:10
know, the gilt yields were back to where
12:11
they were at on the global financial
12:13
crisis on the 10-year. So, like that's
12:15
really high, above 5%.
12:18
And also, cash, again, yields are
12:20
higher. So, that's quite attractive. And
12:22
then also things like uh money market
12:24
funds and the US dollar. The US dollar
12:26
which had been in decline over the last
12:28
few years,
12:29
you know, because of this kind of US
12:31
might and because of the sort of
12:33
contextual or comparative sort of safe
12:36
haven of US equities, the US dollar has
12:38
regained some well, both value, but also
12:40
appeal. Mhm.
12:41
And two things linked.
12:43
So, it's less that gold is no longer
12:45
appealing, it's just that the price it
12:47
was a month ago, which was pretty high
12:50
and arguably in a bubble, combined with
12:52
the availability of other safe haven
12:54
assets has meant that it has fallen.
12:56
>> Mhm.
12:57
At this price though, it does look
12:59
compelling. It's not for everybody. If
13:01
you are, you know, saving for retirement
13:03
and you're in your 20s, 30s, 40s, and
13:06
you've got multi-decades ahead of you,
13:08
actually you should be in risk assets,
13:09
painful as it is right now.
13:10
>> Mhm. But we do think gold has a place to
13:13
in portfolios to add ballast over the
13:15
long term as markets hopefully normalize
13:18
over the next couple of months and it
13:20
sort of retains at a more sensible price
13:22
that kind of safe haven status. Yeah.
13:24
And then just to finish, I know during
13:26
our conversation we have touched on the
13:27
need to be have a diverse portfolio
13:29
regardless of what's going on in the
13:30
world and that's really important. But
13:31
of course, this kind of conflict, this
13:33
kind of volatility, it does get people,
13:36
you know, a bit nervous, it makes them
13:37
want to sort of reconsider where they
13:39
are. So, in that regard, how should
13:41
people position their portfolio from
13:43
here? You know, how should they look?
13:44
And and I know we touched on it, but
13:46
just how critical is it to have this
13:48
diverse portfolio, especially during a
13:51
time where there are certain markets
13:53
that have very concentrated stocks that
13:55
are maybe driving gains? Yeah, I mean,
13:57
it's a good point. I mean,
13:58
diversification is always key.
14:00
And by diversification, what do we mean?
14:02
We mean
14:03
companies in different sectors. So, it's
14:06
not surprising that, you know, defense
14:09
stocks have done pretty well when
14:10
there's risk of war, that oil and gas
14:12
companies have done pretty well when
14:13
commodity prices are rising. But when
14:16
that reverses, other parts of the
14:17
markets do well. And so, different
14:19
sectors, which you can get actually very
14:22
cheaply through an index tracker cuz you
14:23
just buy the whole index, is really
14:25
important. If you are in a stage of your
14:27
life where you want, you know, income,
14:30
adding bonds, for example, is really
14:31
important because again, in times of
14:33
market stress, we have seen correlation
14:34
between equities and bonds, but over the
14:36
long term,
14:37
those actually are add diversification.
14:40
And it should be in a position where
14:42
when one does well, the other does badly
14:44
and vice versa.
14:46
And actually, call it good investing is
14:48
not just about making gains, it's also
14:50
about making sure you don't experience
14:52
as many losses, and that's that ballast
14:54
part as well. What I would say is we're
14:57
coming to the end of the tax year,
14:59
and so many people leave it to the very
15:01
last minute.
15:02
And so, if you are at the moment feeling
15:04
super uncertain, but you haven't used
15:06
your allowances, what we're saying to
15:08
clients is, if it's too big a decision
15:10
right now, if that uncertainty is
15:12
overwhelming,
15:13
you can actually just put cash aside.
15:16
So, put cash in your SIP, put cash in
15:18
your ISA,
15:19
and allocate it when things are a little
15:21
more certain. But I would say, don't
15:22
leave it too long because if you're
15:24
trying to time the market, invariably
15:25
you will miss the bounce. But you know,
15:27
actually, if you use those allowances,
15:29
at least get the cash in there and then
15:30
you haven't lost it. Definitely. And
15:32
with it being the bank holiday, I know a
15:33
lot of providers are shutting up shop
15:35
tomorrow, so We're not. Good to know.
15:37
Hargreaves Lansdown is not. [laughter]
15:39
That if people wondering, you can you
15:40
can go to Hargreaves Lansdown. Um well,
15:41
thank you, Emma. I really appreciate you
15:42
taking the time and for everything to do
15:44
with around war and markets and gold,
15:47
stick to hargreaveslansdown.com, we'll
15:48
have the latest.
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