US-Iran war creates market winners and losers as inflation fears rise

More than three months after the spark for the “US-Iran war” was ignited, global assets, including oil, stock markets and currencies, have swung sharply, forcing central banks in many countries to grapple once again with inflation.

At the same time, this battlefield has produced both “winners” and “losers”.

Crude oil, the dollar and AI stocks are the “winners”

• World oil market surges, tightening supply

Crude oil has become the hottest asset, jumping 40% to stand above US$100 per barrel.

In early April, oil prices had nearly doubled from pre-war levels.

Even though major economies tried to release as much as 400 million barrels from strategic petroleum reserves into the market to ease shortages, demand and prices remained high.

• The dollar stands out as a safe-haven asset

The “US dollar” has become the most sought-after refuge for investors, strengthening by 1.5% against other major currencies since the war broke out.

The dollar has outperformed traditional safe-haven assets such as the Swiss franc and Japanese yen, while also being supported by higher US government bond yields, which have attracted capital inflows.

• Tech and AI stocks

In this war, global stock markets have remained broadly resilient, partly because hopes surrounding AI technology and rumours of peace talks have helped support sentiment.

This has pushed US stock markets and South Korea’s KOSPI index to record highs.

The same was true for global memory chipmaker SK hynix, whose market value exceeded US$1 trillion for the first time, following tech companies such as Samsung and Micron in growing alongside AI infrastructure.

By country, the “US” has suffered less economic impact than other continents because it is self-sufficient in oil and natural gas, while investment flows into the AI industry have continued to drive the economy.

China’s “yuan”, meanwhile, is the only Asian currency that has remained steady and strong, because China has vast domestic oil and energy reserves.

“Asian currencies and aviation” hit hard

• Asian currencies suffer heavily

“Asia” is the region directly affected by the situation because it has historically relied on oil imports through the “Strait of Hormuz” for as much as 80%, a route now disrupted by the war.

As oil becomes more expensive to buy, economies have stumbled, affecting Asian currencies.

India’s rupee, Indonesia’s rupiah and the Philippine peso have plunged to record lows, forcing many countries to draw on reserves to support their currencies or reluctantly raise interest rates, such as Sri Lanka, which had to raise rates sharply by 1.00%.

• Europe’s economy takes a battering

Europe has been badly hurt by the impact of expensive oil, with economic activity in the “eurozone” contracting at the sharpest pace in two and a half years.

The European Central Bank (ECB) has warned that the financial system is becoming fragile, while businesses in England have reported clear declines in sales and business activity.

At the same time, raw material and energy costs have moved in the opposite direction, rising sharply.

Long-term bond yields surge

Government bond prices have fallen sharply, moving in the opposite direction to yields, which have surged because investors expect central banks to keep interest rates high to fight inflation.

This pushed the 30-year US government bond yield above 5%, the highest level since 2007.

German government bond yields, meanwhile, rose to a 15-year high because markets expect the European Central Bank to raise interest rates at least two more times this year.

• Aviation and luxury goods businesses hit hard

However, not every industry has escaped the impact.

The S&P 500 airline stock index has fallen by more than 6% because of disruption to flights worldwide.

Global luxury-brand stocks have fallen by as much as 10% as investors worry that inflation will prompt middle- to upper-income consumers to tighten their belts and cut spending.