War-proof your portfolio and find hidden gems amid chaos

Uncertainty as geopolitical tensions grow means even savvy investors are struggling

- Angela Tan

It is hard enough to build an investment portfolio in the best of times, but the uncertainty that comes with rising geopolitical tensions means even savvy investors are struggling.

They are increasingly wary, given the widening conflict in the Middle East and a possible retaliatory Israeli attack on Iran.

A key concern is the escalation of oil prices, which could trigger a fresh wave of inflation that in turn would exert downward pressure on stock prices. It could also hit trade and investment activities.

RHB's economics team projected that more than 40 per cent of the global economy and 50 per cent of trade may be affected. In the worst-case scenario, slower global growth and trade might reduce the demand for Asean's exports. It could also result in less foreign investments into the region.

Singapore has Asean's highest foreign direct investment exposure, making it the most vulnerable in the region, said Mr Shekhar Jaiswal, an analyst at RHB.

DBS chief economist Taimur Baig is more optimistic.

"Intensification of conflicts in the Middle East is a grave source of concern, but the impact on the oil market and the global economy is unlikely to be seismic," he said. Crude oil production and shipments could be affected. Iran is the world's seventh-largest producer and exports half of its output, while about a quarter of the world's oil shipments pass through the Strait of Hormuz.

Destruction of production and refining facilities could cause a spike in oil prices.

But Mr Baig said they are unlikely to result in a major supply squeeze, as production and shipment disruptions can be made up by capacity elsewhere.

He noted that the world is also less dependent on Middle East fossil fuels, given the shift to renewable energy in recent years. This means the inflationary impact of a potential escalation would likely be more contained.