SINGAPORE: Donald Trump’s announcement of a two-week ceasefire between the United States and Iran brings welcome relief to Asian markets in the short term, according to strategists.
But the sustainability of the region’s equity rally depends on how quickly passage through the Strait of Hormuz resumes, they warned.
Elevated oil prices remain a downside risk for Asian economies, many of which rely on Middle Eastern crude imports.
Fabien Yip, market analyst at IG International said: “There’s a lot of optimism, for sure, but we’re not back where we started at the end of February as oil prices remain high.
“It’s important to watch out for Iran’s willingness to open the strait.
“Once tankers start to go through, there will be a bit more clarity,” Yip added.
Asian equities will likely rebound higher than their European and US peers as Asia was hit hardest after the war broke out.
Tech and artificial intelligence (AI) stocks stand to benefit most as they were among the most heavily sold off.
“Maybe we will see some people taking profit as well, amid the rebound.
“Some investors will take the chance to get out of the exit.”
Energy shares are likely to see profit taking as they have gained on higher commodity prices.
Homin Lee, strategist at Lombard Odier Singapore, said: “If Hormuz flows start to improve meaningfully, markets will have the relief rally in the remainder of the week.”
“Traders will try to push very hard for the famous Taco trade and reduce Hormuz premium further from key asset classes.
“Beyond that, the reality of prolonged geopolitical uncertainties in the Gulf region will cap how far they can push it, especially if the talks do not progress quickly enough.”
Hebe Chen, senior market analyst at Vantage Global Prime, added: “The plunge in oil prices after Trump’s announcement offers much-needed relief for markets.
“But while this 11-day window restores shaken conviction marginally, it is a fragile restoration of nerve – a tactical breather, not yet a structural pivot.
“We are seeing a violent scramble out of war hedges, yet it remains far too early to buy into the peace-forever story while the Strait of Hormuz remains the world’s most expensive hostage.”
Matthew Haupt, a hedge fund manager at Wilson Asset Management, said: “Markets will be risk-on for a bit, but we still need to see the Strait of Hormuz open – it will be two weeks on edge.
“I was adding last night in anticipation and added a tiny bit this morning. Still feels like there will be a few twists and turns left before we get an outcome.”
Hiroyuki Ueno, chief strategist at Sumitomo Mitsui Trust Asset Management, said: “This is a relief for markets. For the time being, things have calmed down.
“Iran has actually come to the table, which is a step forward.
“There’s now a feeling that high oil prices won’t continue for too much longer.”
“Stocks that had been ‘dumped’ during the rout over the past month will be repurchased, fueling a ‘decent’ rebound in the short term,” Hiroyuki added.
“In Japan, tech and AI stocks look best positioned for buying.
“But things are not guaranteed to go smoothly from here, and investors shouldn’t get ahead of themselves.”
Carol Kong, strategist at Commonwealth Bank of Australia, said: “There have been knee-jerk reactions across foreign exchange, but crucially, there is no plan on how the war will end.
“We still expect the United States will have to escalate eventually to end the war.
“So while the US dollar may ease further in the immediate term, it will struggle to hold onto losses sustainably.” — Bloomberg
