The ongoing conflict in the Middle East is not expected to disrupt markets for longer than six months, say fund groups.
According to Quilter’s latest Investor Trends survey, more than eight in 10 (81%) respondents said they expect Middle East disruption to stop being a material driver of markets within six months, with more than half (56%) saying it would take no more than three months.
The majority of respondents also believe that the price of oil would need to rise by a lot more to pose a challenge to equity markets. Nearly two thirds (63%) said the price of oil would need to be in the range of $130-150 per barrel for equities to reprice materially lower.
However, fund managers are giving thought to the knock-on effects of the Middle East conflict, Quilter said.
Inflation was considered to be the biggest factor being underappreciated by markets, with 44% of respondents identifying it as such. This was followed by an AI-bubble (22%), recession risk (15%) and geopolitical risk (11%).
The survey also looked at the impact of political risk, with events in the US and UK looming large. A quarter (25%) of respondents expect the outcome of the US midterms to lead to short-term volatility caused by policy uncertainty, while the same proportion expect little to no market impact and 44% see a positive outcome for markets as a result of increased political gridlock and the preservation of the status quo.
Meanwhile, in the UK, uncertainty around the Labour Party leadership has already caused volatility within gilt markets. If gilt yields remain elevated, more than half (56%) of fund managers believe a reaffirmation or strengthening of the fiscal rules would be the most credible outcome to deal with the problem, while 31% see a mix of tax rises and targeted spending restraint as the best option available.
Lindsay James, investment strategist at Quilter, said: “Events in the Middle East continue to dominate headlines, with false promises and news of developments quickly being undermined by the actions of the states involved. However, fund managers still seem relatively optimistic that we will see a resolution within six months.
“It is hard to have a high degree of confidence in this outcome given the actions of the US and Iran to date, but the expectation is that it is in both sides’ interests to get a deal over the line, and that will be celebrated by markets when it comes.
“Investors are clearly concerned that inflation will remain elevated for longer than is hoped. While they expect the price of oil would need to rise to a much higher level before equity markets repriced, inflation is still seen as being under appreciated by the wider market and has the potential to cause disruption even in the event of a lasting peace deal with Iran.”
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