To The Moon

The ongoing conflict between Israel and Iran, with recent escalations including US involvement, has introduced significant turmoil and uncertainty into global markets.

In this article I would like to share what I think we as investor can do as navigating this turmoil can be challenging, but a disciplined and strategic approach can help mitigate risks and even identify opportunities.

Key Impacts of the Israel-Iran Conflict on Markets

Oil Prices and Inflation

Direct Impact: The most immediate and significant impact is on global oil prices. The Middle East is a critical region for oil production and supply. Any disruption to production, or threats to key shipping routes like the Strait of Hormuz (through which about 20% of global oil and 20% of global LNG passes), can cause prices to surge.

One way to take advantage of rising oil prices would be investing in $United States Oil Fund LP(USO)$ .The United States Oil Fund (USO) is an ETF designed to track the daily price movements of West Texas Intermediate (WTI) crude oil.

Given current geopolitical tensions, particularly the Israel-Iran conflict, USO might be considered for short-term investment as:

Geopolitical Risk: Heightened tensions in oil-rich regions can disrupt supply, leading to spikes in oil prices. USO offers direct exposure to these price movements.

Inflation Hedge: Oil often acts as an inflation hedge, appreciating when other assets might struggle due to rising costs.

However, be aware of contango (futures prices higher than spot) which can erode long-term returns, making USO generally better suited for short-term trading. Another thing to note is the expense ratio of 0.70%.

Inflationary Pressure: Higher oil prices directly translate to increased energy costs for businesses and consumers, leading to inflationary pressures. This could complicate efforts by central banks to control inflation and may push them to maintain higher interest rates for longer, negatively impacting growth-oriented sectors like technology.

Uneven Global Impact: Asia is particularly vulnerable due to its heavy reliance on Middle Eastern oil. Europe has diversified somewhat but remains sensitive to energy prices. The U.S., as a net energy exporter, might be less affected directly but would still feel repercussions through interconnected global markets and potential inflation spillovers.

Market Volatility and Risk Aversion

Geopolitical tensions increase market uncertainty, leading to heightened volatility. The VIX (volatility index), often called the market's "fear gauge," tends to surge during such periods.Investors may move away from "risk-on" assets (e.g., emerging market equities, growth stocks) and into "safe-haven" assets.

As of 20 June 2025, the fear greed index is still at neutral, but I am expecting that we will be seeing a move to the fear with the Israel-Iran conflict have not coming down to a halt.

Another way to take advantage would be betting on the VIX, as we can see that $ProShares Ultra VIX Short-Term Futures ETF(UVXY)$ . In early April 2025, the VIX (Cboe Volatility Index) experienced a significant surge, reaching a high of 60.13 on April 7th, a level not seen since the COVID-19 pandemic or the 2008 financial crisis. This spike in volatility, which reflected market expectations of increased price fluctuations in the S&P 500, was triggered by a combination of factors, including market reactions to potential tariffs and other policy announcements. The VIX then quickly reverted to lower levels within a couple of weeks, illustrating the rapid shifts in market sentiment during that period. 

UVXY have similar movement, we could see a quick surge with just one or two days then it move down again before showing volatility trading, while maintaining the positive momentum, I am expecting that we might see similar behavior this week as market continue to grapple with the Israel-Iran conflict, and the volatility and turmoil that could hit a broader market.

Supply Chain Disruptions

Beyond oil, increased shipping insurance premiums and potential rerouting of vessels due to perceived risks in certain waterways could lead to higher logistics costs and broader supply chain disruptions.

Economic Growth Concerns

Sustained high oil prices and supply chain disruptions can weigh on global economic growth, potentially leading to scenarios of stagflation (high inflation and low growth).

How We Investors Can Navigate the Turmoil

Stay Calm and Maintain Discipline

Avoid Panic Selling: Geopolitical crises often trigger emotional responses leading to impulsive decisions. History shows that markets tend to recover from geopolitical shocks over the long term. Selling into panic can lock in losses and cause you to miss the inevitable rebound.

Long-Term Focus: Unless your fundamental investment thesis for a company or asset has changed, maintain a long-term perspective. Geopolitical risks typically have a fleeting impact compared to long-term economic fundamentals.

Diversification is Key

Geographic Diversification: Spread your investments across various countries and regions. While the Middle East conflict has global implications, some regions and economies may be less directly impacted than others.

Sector Diversification: Invest in multiple sectors. While energy and defense stocks may benefit, others could be negatively affected. Diversifying across sectors like healthcare, utilities, consumer staples, and technology can reduce reliance on any single industry.

Asset Class Diversification: Don't put all your eggs in one basket. Maintain a mix of stocks, bonds, and potentially alternative assets. A balanced portfolio (e.g., 60/40 stocks/bonds) has historically outperformed holding cash during periods of geopolitical stress over 1-3 year horizons.

Consider Safe-Haven Assets:

Gold: A traditional safe-haven asset, gold tends to hold its value or appreciate during times of geopolitical uncertainty and inflation. Continue to hold or increase holdings in $SPDR Gold Shares(GLD)$, if not, it is time to invest, over the weekend, I visited some gold shops in Singapore, the price of 999 gold is at S$150 per gram, I think this is going to go higher.

High-Quality Government Bonds (e.g., U.S. Treasuries): These are generally considered low-risk and can provide stability, especially during "flight-to-safety" events, as increased demand drives prices up and yields down.

Safe-Haven Currencies: Currencies like the Swiss Franc (CHF) and Japanese Yen (JPY) often strengthen due to their countries' perceived neutrality and stable economies. The U.S. Dollar can also act as a safe haven due to its status as the world's primary reserve currency.

Cash: While not an investment for growth, holding some cash provides liquidity and flexibility to take advantage of opportunities when markets eventually stabilize or correct.

Invest in Defensive Sectors/Stocks

Consumer Staples: Companies producing essential goods (food, household products) tend to perform relatively well even during economic downturns, as demand remains consistent. $Consumer Staples Select Sector SPDR Fund(XLP)$

Utilities: Utility companies often have regulated revenues and are less susceptible to economic cycles, offering stability and consistent dividends. $Utilities Select Sector SPDR Fund(XLU)$

Healthcare: Demand for healthcare services and products tends to be less elastic, making this sector relatively resilient.

Aerospace & Defense: These sectors may see increased demand and investment during periods of heightened geopolitical tension.

Monitor Energy Sector and Related Investments

Energy Stocks: While volatility is expected, energy companies, particularly those outside the immediate conflict zone, could benefit from higher oil and gas prices.

Logistics/Transport: Longer trade routes or increased demand for shipping due to supply chain reconfigurations could potentially benefit global transport companies.

Review and Rebalance Your Portfolio

Stress Testing: Consider how your current portfolio would perform under different scenarios (e.g., oil prices spiking to $100 or $120, a global recession).Rebalance: If your portfolio has become overly concentrated in certain areas due to recent market movements, rebalance it to align with your desired asset allocation and risk tolerance.

Stay Informed but Filter the Noise

Closely monitor credible news sources and analysis related to the conflict and global markets.Be wary of sensational headlines and emotional reactions. Focus on the fundamental economic implications rather than short-term fluctuations.

Summary

The situation is fluid and highly unpredictable. The "best" strategy can change rapidly based on developments. It is always advisable to consult with a qualified financial advisor who can provide personalized guidance based on your specific financial situation, risk tolerance, and investment goals.

It is a good time to relook into your portfolio and also strategy and see how you can take advantage of some of the good deals and also filter the bad ones.

Appreciate if you could share your thoughts in the comment section whether you think fund inflow into safe haven assets would start and last for some time.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.