When Oil, War and Markets Collide - What It Means for Investors
The past week has once again demonstrated how quickly geopolitical tensions can ripple through global financial markets. This is according to Thys van Zyl, CEO of Everest Advisory Services. Rising military tensions in the Middle East have immediately pushed energy prices higher and sent investors searching for safety in assets such as gold.
Van Zyl says at the centre of the concern lies the Strait of Hormuz, a critical shipping route through which roughly 20% of the world’s daily oil supply passes.
“Even the possibility of disruption in this corridor is enough for energy markets to begin pricing in a geopolitical risk premium,” he remarks.
But what does this mean for investors, particularly those in South Africa? According to van Zyl the markets react quickly but not always rationally.
“When geopolitical risk rises, financial markets tend to follow a predictable pattern such as oil price increase, the price of gold strengthens and risk assets become more volatile. Institutions such as the Organization of the Petroleum Exporting Countries (OPEC) also play a major role, as they control a significant portion of global oil production. Energy therefore is not just a commodity, it is also a geopolitical instrument.”
But what does this mean for the JSE on the local front? Van Zyl says we often see a mixed reaction during energy shocks when it comes to the JSE.
“Certain sectors benefit from rising commodity prices while others come under pressure. One of the most sensitive shares in this environment remains Sasol. When oil prices rise, Sasol’s share price often reacts quickly. However, investors must remember that Sasol also faces structural challenges, including debt levels, high operating costs and exposure to the global chemical market. In other words, oil prices alone do not determine Sasol’s success,” he explains.
But herein lies the opportunity. Van Zyl says in uncertain environments, three investment themes often emerge:
Global earnings companies
Companies such as Naspers and Prosus generate a significant portion of their earnings offshore, providing exposure to global growth and helping hedge against currency risk.
Commodity exposure
Gold producers such as Gold Fields often benefit when geopolitical uncertainty increases.
Defensive businesses
Companies with stable cash flows and consistent demand, such as Shoprite Holdings, tend to hold up better during volatile market periods.
He says this also brings about the rise of Alternative Income Investments.
“In volatile markets, many investors are also exploring fixed-income instruments such as debt notes issued under a Domestic Medium Term Note Programme (DMTN). These instruments can offer fixed returns, predictable income streams and lower exposure to equity market volatility. However, as with any investment, the credit quality of the issuer and the security behind the structure remain critical.”
Van Zyl suggests that this could be a big lesson for investors as markets react quickly to geopolitical news. Prices can move within hours and emotion often drives short-term decisions.
“However, the fundamental principles of investing remain unchanged which include diversification, quality businesses, liquidity and long-term discipline. Geopolitical tensions will come and go. Energy prices will rise and fall. But for investors, the real question is not simply profit or loss. It is how portfolios are structured to navigate both. Wins or Losses.”
IMPORTANT NOTICE AND DISCLAIMER
General Information
This press release is provided for general information and educational purposes only and does not constitute financial advice, investment research, or a recommendation as defined by the Financial Advisory and Intermediary Services Act, 2002 (FAIS Act). The content reflects the personal views and economic commentary of the author and should not be relied upon as the sole basis for making any investment or financial decisions.
Forward-Looking
This document contains forward-looking statements and projections regarding economic conditions, market performance, policy developments, and geopolitical scenarios. These statements are based on current information, analysis, and assumptions which may prove incorrect. Actual outcomes may differ materially from projections or scenarios discussed herein. No guarantee is provided regarding the accuracy of forecasts, and readers should not place undue reliance on forward-looking statements.
Author's Capacity
This document represents the personal views of Thys Van Zyl in his capacity as Chief Executive Officer of Everest Advisory Services, which forms part of the Everest Wealth Management Group and constitutes economic commentary based on publicly available information and professional experience. It does not represent institutional investment research, formal product recommendations, or the solicitation of financial services.
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