Australian financial markets have displayed a striking return to calm following recent global geopolitical tensions. Australian shares are once again approaching 9000 points, the VIX volatility index has receded to pre-Iran levels, and Australia’s 10-year bonds have dipped below 5 per cent. Oil prices, though still elevated, remain under US$100 a barrel. This rapid stabilisation suggests investors have largely absorbed the upheaval, reinforcing a “keep calm and invest on” sentiment.
This belief that geopolitical shocks are buying opportunities continues to fuel a robust bull market. US shares have delivered significant annual returns over the past three years, with investors pushing markets higher on any positive news, seemingly disregarding prior substantial gains. Matthew Tan, head of asset allocation at LGT Wealth, noted April 8 as a perceived peak day of uncertainty, coinciding with a US-Iran ceasefire agreement. LGT Wealth manages approximately $45 billion for wealthy Australians and their families, providing asset allocation advice.
Tan argues geopolitical events, external to economic cycles, can be met with government stimulus and reveal material constraints like oil prices, pressing leaders to act swiftly. He adds that “markets are heartless,” often looking past human suffering. However, bond investors express greater caution. Barclays’ Ajay Rajadhyaksha noted “a ceasefire is not a refund; there will be a bill for the past six weeks,” primarily due to persistently high oil prices, with JPMorgan anticipating US$100 a barrel for the year. This highlights a potential disconnect between market sentiment and real-world economic impacts.
The divergence is particularly evident in Australia, where Prime Minister Anthony Albanese recently addressed domestic fuel supply issues by cutting the fuel excise and suspending heavy vehicle road user charges. Despite these real-economy challenges, Australian shares have only seen a modest 3 per cent decline since the geopolitical conflict commenced. While the market is structured for asset price growth, the risk remains that this prolonged “keep calm and invest on” strategy, underpinning a nearly two-decade-long bull market, will eventually face a significant reversal.
