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United States, Institutional
Changechevron_rightThe views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
The scenario playing out between Israel and Iran remains the most likely path to a wider conflict that would matter to markets. My usual advice in situations like this remains the same: These are highly fluid geopolitical developments and are therefore rife with incomplete information and, in some cases, misinformation. In such a challenging information environment, exercise extreme caution and patience regarding the veracity of events while at the same time expanding your imagination about a wider set of potential outcomes and what those outcomes could mean to portfolio exposures and investment strategies.
I’ve moved my base case of a wider regional war to 45% (up from the historically high 35% prior to Iran’s missile launch). So, essentially, I believe this is now a coin flip and therefore demands wider portfolio attention. While I remain hopeful on the margin that US military deterrence and clear/aggressive diplomacy toward Iran and Israel can keep this conflict under relative control, the situation continues to escalate and each development brings a new set of uncertainties.
Here are two uncertainties I’m watching closely from here:
As for the bigger-picture investment implications, my larger and most important point remains the same: Iran’s attack on Israel is yet another indication that the geopolitical backdrop remains the most dangerous, unstable, and unpredictable environment in decades. In such conditions, world leaders are more likely to take greater policy risks if they believe core national security issues are at stake (true here for both Israel and Iran). From an investment perspective, this structurally higher geopolitical risk continues to force policymakers around the world, including on Capitol Hill, to prioritize national security issues, sometimes at the expense of economic efficiency, which should support long-term national security themes including legacy defense, defense innovation, and climate adaptation/resilience.
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