Editor's note: Recently, the escalation of the situation in the Middle East has become one of the core factors disturbing the financial markets. Crude oil and gold prices have experienced significant volatility. Global market trends under geopolitical risk are drawing close attention.
【Anchor】Recently, the escalation of the situation in the Middle East has become one of the core factors disturbing the financial markets. Crude oil and gold prices have experienced significant volatility. Global market trends under geopolitical risk are drawing close attention.
Welcome to DDN Business Insider. Today, we invite Wu Lixian, securities strategist from Everbright Securities International; Tan Haojun, part-time professor at Zhongnan University of Economics and Law; financial commentator Guo Shiliang; and Legislative Council member Ronick Chan, to discuss the market changes under the Middle East situation. Good to see you all!
【Anchor】The escalation of the geopolitical situation has led to a short-term increase in oil and gold prices. However, despite the situation not showing significant improvement, gold prices have fluctuated significantly, spiking and then retreating. Mr. Wu, what do you think is the reason for this phenomenon?
【Wu】Before the U.S. initiated a war against Iran, gold prices had already risen significantly. Therefore, as global stock markets decline, this creates a certain amount of profit-taking pressure in other asset classes. These investment markets are interrelated; if the stock market falls, some capital may seek to lock in profits from gold and then flow back into the stock market. This is one reason.
The second reason is that, given the current situation of the war in Iran, there is considerable concern that oil prices may rise significantly. With the Strait of Hormuz potentially being blocked, the cost of oil transportation will increase. If oil prices rise, thiswould have a substantial inflationary impact on economies, including the U.S. This, in turn, would affect the Federal Reserve's pace of interest rate cuts. A slowdown in the rate-cutting process would also negatively impact the prices of commodities.
【Anchor】Alright, Mr. Tan, what do you believe is the reason for the seemingly unusual fluctuations in gold prices?
【Tan】War does have a certain impact on gold, leading to price increases, especially when the conflict first breaks out, resulting in a notable rise in gold prices. However, this was quickly followed by a decline, possibly due to the previous excessive increases in gold prices. They had already reached a level where continued increases were difficult. Overall, if the war does not end quickly, gold prices are likely to rise again.
【Anchor】Alright. Given the current developments in the Middle East, Mr. Wu, how do you think this geopolitical event will impact the global market, and how will various asset classes be affected?
【Wu】Based on the current situation, I anticipate that the continuation and duration of the war will have varying impacts on the market. I expect that the global stock market will remain relatively volatile. Although we have seen rebounds in the Asia-Pacific markets today and in U.S. markets yesterday, I believe that we have not yet passed the most pessimistic or volatile phase.
As for oil prices, I am relatively optimistic. If the Strait of Hormuz is blocked, I think there is limited room for a significant decline in oil prices in the near term. Thus, I believe that prices will likely remain at high levels or continue to trend upward. Regarding gold prices, I think they may struggle. On one hand, there is risk-averse sentiment, and on the other hand, there are expectations of future inflation. Therefore, I see gold prices potentially fluctuating within a broad range of approximately US$4000 to US$4500.
【Anchor】OK, Mr. Guo, how do you evaluate the impact of this event on the global market? How might various asset classes respond?
【Guo】The worsening situation in the Middle East affects various global assets, including gold, oil prices, and stock markets. For gold, while risk-averse sentiment is rising, if the U.S. dollar index begins to rebound from its lows, it may put pressure on gold prices. Oil prices are primarily influenced by market sentiment and supply-demand imbalances. Currently, oil prices are in a phase of rapid increase; however, if the Strait of Hormuz opens, improving the global energy supply-demand structure, we could face the risk of oil prices peaking and then retreating. The stock market serves as an economic barometer and an indicator of monetary policy tightening or easing. If the U.S. dollar index enters a new upward cycle, stock markets may experience some pressure, especially emerging market stocks, which could face relatively larger adjustment pressures.
【Anchor】Now, let us focus on the medium-to-long-term market impact. Mr. Wu, based on your judgment of the event's trajectory and duration, as well as its influence on major asset classes, what kind of chain reactions might this geopolitical event produce from a medium-to-long-term perspective?
【Wu】From an economic standpoint, the impact on the U.S. economy may depend on the outcome. However, I remain relatively optimistic about the Asia-Pacific market, particularly regarding the growth of the Chinese economy, which I believe has a high level of certainty in the medium to long term. For instance, this year's Two Sessions just set the GDP growth target at 4.5% to 5%. Looking ahead, I believe the stability of China's growth can be maintained.
【Anchor】Yes. Mr. Guo, what are your thoughts? What chain reactions do you think this event will produce in the medium to long term?
【Guo】In the context of a significant rise in oil prices, the market is beginning to worry about the potential for imported inflation. For the global market, 2026 may face expectations of rising inflationary pressure. Once inflationary pressures increase, the Federal Reserve's room for further interest rate cutswill be greatly reduced, and they might even announce a pause in rate cuts earlier than expected. The strengthening of the U.S. dollar index will also put pressure on most global assets, especially since there is a clear negative correlation between the dollar and most assets, which can create a seesaw effect. If the dollar enters a new upward cycle, it is likely to put further pressure on the majority of global assets, including gold and stocks. Additionally, if the dollar index rises above 100 again, emerging market equities may face further adjustment pressures. Therefore, currently, the global stock market, particularly growth stocks and thematic stocks, may encounter risks of a re-evaluation of their valuation systems. This year, investors mayhave a stronger preference toward risk aversion, with a "cash is king" trend.
【Anchor】Mr. Tan, what chain reactions do you anticipate this event will produce in the medium to long term?
【Tan】The impact of war on commodity prices is very apparent in the short term. In the medium to long term, the impact will also be significant. Regardless of the outcome, there will be impacts on infrastructure, business confidence, and consumer expectations, which will adversely affect investors' confidenceand investment objectives. More importantly, this war against Iran occurs while the U.S. is negotiating with Iran, and it happens at a time when the negotiations seemed to be progressing well.
This means that the war has significantly damaged the U.S.'s credibility, and other countries will greatly lower their trust in the U.S. Because of this, going forward, how Trump interacts with other countries could present some challenges. Given Trump's personality, he often resorts to crack down and sanctions, which could further deteriorate global dynamics and trade relations, leading to more negative consequences and increased market uncertainty.
【Anchor】Mr. Tan, how do you expect the trajectory of this geopolitical event to unfold?
【Tan】Trump is certainly very optimistic about the timing of the war.
However, the outcome could completely exceed his expectations, which is also the situation he fears most. Trump claims that four to five weeks of preparation would be ideal, which seems to be a way of comforting himself. At this stage, the initiative does not lie in his hands but rather in the hands of the Iranians. As long as Iran's command system remains intact and they continue to engage with the United States, Trump's anxiety and restlessness will keep rising. The rising global energy prices will inevitably impact U.S. inflation.
Inflation in the U.S. is something Trump is very concerned about. Once inflation occurs, his goal of cutting interest rates to spur U.S. economic growth will be compromised, and the Federal Reserve will be forced to raise interest rates. This is evidently a situation Trump must confront but cannot change. For Trump, it has become a race against time that he is difficult to win. It is even possible that he somewhat regrets deciding to go to war with Iran.
【Anchor】Yes. Next, we turn our attention to Hong Kong. The Financial Secretary, Paul Chan, recently stated that the financial markets would see fluctuations due to the situation in the Middle East, and that Middle Eastern funds would seek a "haven" in Hong Kong. Mr. Ronick Chan, how significant do you expect these changes to be for Hong Kong's capital markets?
【Chan】The peg between the Hong Kong dollar and the U.S. dollar is relatively stable, which can attract funds seeking to hedge against U.S. dollar assets. The sovereign funds from Middle Eastern countries have substantial assets, and in the past, they primarily invested in European and American markets. As their need for diversified investments increases, if some of these funds are allocated to the Hong Kong market, it could bring considerable incremental capital. From a long-term perspective, the Hong Kong government has proactively developed Islamic bonds and related financial products to meet the compliance requirements of Middle Eastern funds regarding Islamic finance. I believe this type of capital will continue to flow in and will help position Hong Kong as a hub for Islamic finance, connecting the Chinese mainland and the Middle East.
【Anchor】Well, Hong Kong has been actively exploring the Middle Eastern market, as mentioned in the budget report about deepening its relationship with the Middle East. Given the escalation of the situation there, do you think it will affect cooperation between Hong Kong and the Middle East?
【Anchor】Hong Kong's status as a haven, along with our unique advantages, aligns perfectly with the requirements for Middle Eastern capital to seek both security and value appreciation. I believe this will attract more Middle Eastern funds and collaborative projects.
The budget report clearly states the intention to deepen engagement with the Middle Eastern market, and relevant measures are expected to be rolled out continuously, such as the preparation for a trade office in Riyadh. Existing collaborative projects will continue tobe further deepened based on their current progress. I trust that the Hong Kong government has adequate contingency plans in place to prepare for and cautiously handle financial risks.
【Anchor】OK, thank you to all the guests. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
Anchor: Laura Cheung | Edited: Kelly Yang, Laura Cheung, Rachel Liu | Translate: Kato Ip | Proofread: Chris Liu
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