Will Hormuz Re-Open? Comment and Analysis Here

Some industry comments on Hormuz;

Javier de Berenguer, Investment Manager and Fund Selector at MAPFRE, commented,

“Is the market experiencing a period of euphoria? It depends on the lens you look through. From a very short-term perspective, conflicts such as the one in the Middle East can certainly trigger corrections. But from a longer-term perspective, what we’re seeing is a full-fledged technological revolution. We risk becoming overly cautious.

We’ve seen the market consistently lag behind Nvidia, a company whose earnings have, quarter after quarter, outstripped its prior market valuation. We risk seeing the same thing happen with other companies if we view the market through a cyclical lens or rely on sentiment indicators that may work in normal economic contexts, but can leave us behind in the midst of a technological revolution,” De Berenguer warns.

For now, the market is not pricing in a scenario in which the conflict involving Iran and the Strait of Hormuz drags on much longer. The risk investors are factoring in is being left out of AI, and that’s the one they’re prioritizing. If this extends beyond July or August, we would no longer be looking at oil-price risk, but at scarcity risk, which would trigger an economic recession. It will all depend on how long the conflict lasts.

As for inflation, the United States is expected to see some rebound, although it is not expected to be especially large. But because the U.S. is the country with the greatest exposure to AI and its productivity gains, the impact on growth is not expected to be as significant. Any potential rate hike will depend on what happens in Hormuz and how long the conflict lasts. There could be a rate hike at the end of the year, not so much because the Fed believes it would be effective, but as a way to shore up its credibility.

The ECB’s credibility is also at stake in Europe. The Eurozone is more exposed to the impact of oil prices, meaning rate hikes would come sooner. They would not bring inflation down either, but the measure would serve other purposes: shoring up credibility and supporting the euro.

As a general recommendation, we warn against overly cautious positioning. We need to be invested in equities over the medium and long term. In the short term, much depends on Hormuz.”