Syria and World Markets

By Emma Black (Portfolio Manager at Tier One Capital) 28 August 2013

More than two years ago, Syria began experiencing a political uprising that has led to more than 100,000 people dying and more than 1.7 million registered refugees. On Monday, amid claims that the Syrian government have used chemical weapons, a UN inspection team were fired on in and around Damascus leading to the US, UK and France voicing statements suggesting western intervention could be imminent. The UK Prime Minister David Cameron said that the world “could not stand idly by” while US Defence Secretary Chuck Hagel said that US forces are ready to launch an attack. Forces have already been dispatched to the Gulf by the three allies. So what does this mean for your investments?

Equity markets have fallen for a second day following concerns about military intervention in the region, particularly on concerns that the oil supply will be disrupted if the Middle East is destabilized further. This has simultaneously led to a surge in oil prices with Brent Crude Oil increasing by 1.63% in this morning’s trade to a six-month high while US crude futures are also reported to have increased by more than $2.

The disruption to the oil supply and concerns over the consequences of destabilizing the Gulf further have led to opposition from Russia, Iran and China who have strongly warned the West against military intervention. Global disagreement has led the CBOE Vix volatility index – a measure of confidence in markets – to spike to a two-month high with anxious investors worried about the potential widening of the Syrian turmoil. As a result, traditional safe-havens such as Government Treasury’s and Gold have seen more funds entering although their respective immediate price shifts may not mark a significant departure from long-term expectations at this point.

Moving forward, Tier One Capital believes that predicting if and when military action is taken is a difficult call to make. While the FTSE has been undecided over whether it breaks upwards or downwards from its, on average, 6,500 plateau, the Syrian conflict would suggest increased pressure for the latter to be more likely. It is clear that if action is taken, the geopolitical landscape will be engulfed in trying to establish safety and stability in the damaged and weakened Syria. This could potentially lead to a delay in QE tapering but markets will undoubtedly continue to experience market pessimism and conservatism with this ongoing uncertainty. As a result, the investments team at Tier One Capital will be monitoring the situation closely to ensure the impact on client returns is minimized as much as is possible. One way to try to work toward this end is via the use of minimum volatility exchange-traded funds (ETFs).

Here at Tier One Capital, we are supporters of cost-efficient passive vehicles as they provide an investor with the ability to diversify their portfolio to a much larger extent through investment into funds aimed at tracking the overall indices rather than individual stocks. As market volatility on the back of concerns regarding military intervention in Syria mount, adding to existing anxieties over QE-tapering and upcoming European elections in Germany, volatility in Q4 is an inevitable reality. To try to weather the storm, minimum volatility ETFs can provide a new approach for investment through the construction of portfolios optimized to set constraints that serve to reduce portfolio risk. These funds can still provide market exposure and related returns but also serve to achieve low-beta, downside protection and extensive diversification across asset class, sector and style.

If you would like to discuss our market outlook more or learn how Tier One Capital can help you to navigate your way through unprecedented times, give us a call on +44 (0) 191 222 00 99.