American Century Investments reports that the conflict involving Iran is impacting global small-cap equities primarily through its effect on energy prices. The firm’s global small caps team believes that rising energy costs influence inflation, interest rates, and overall risk appetite in the market. They also stated that the key near-term risk involves potential disruption to the Strait of Hormuz.
While a full closure of the Strait of Hormuz seems unlikely given Iran’s dependence on oil exports, the current environment suggests an increased risk of shipping disruptions. The planned production increase of 206,000 barrels per day by OPEC+ is viewed as a partial mitigation of these geopolitical supply risks. Market outcomes will largely depend on the duration of the conflict.
A short-lived conflict could potentially support equities. However, a prolonged period of elevated oil prices would weigh on economic growth and small-cap valuations. American Century Investments provides investment management services with strategies spanning a variety of asset classes. The company aims to deliver long-term investment results and build enduring client relationships.
From a portfolio perspective, the firm identifies risks stemming from higher energy costs and a decline in investor confidence. Simultaneously, the firm sees opportunities in sectors that could benefit from stronger commodity prices, increased defence spending, and rising logistics demand. They suggest maintaining diversification as a key strategy amid ongoing market volatility.
