Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., January 29, 2024.
Brendan Mcdermid | Reuters
Geopolitical risks may be mounting, but stocks are still the “asset class of choice,” according to Beat Wittmann, partner at Porta Advisors, who also said the outcome of the U.S. election in November would be “pretty irrelevant” for markets.
As investors enter an unprecedented year for elections around the world amid multiple large-scale conflicts at risk of further escalation, Wittmann acknowledged that “politics will remain difficult and confusing,” but that markets will likely be sanguine.
“There are two transmission mechanisms. One is energy prices — will the trouble in the Middle East be a transmission into higher energy prices, or the war in Eastern Europe? Not really, if you look at how energy prices have developed,” he told CNBC’s “Squawk Box Europe” on Tuesday.
“And the second thing is really international trade and trade routes. We have seen it brutally in Covid and we see a bit of it of course — traffic through Suez, insurance companies putting up costs, etc.— but that’s all digestible.”
He added that markets had “gotten used to trouble in geopolitics” over the last five years, so the impact on asset prices of any further bad news would be somewhat limited.
Last year offers some support to this theory. Despite the breakout of the Israel-Hamas war and Russia’s invasion of Ukraine showing no sign of abating, along with a host of other simmering geopolitical tensions around the world, the S&P 500 gained 24% in 2023.
However, much of the momentum was driven by the outstanding performance of the so-called “Magnificent Seven” mega-cap tech stocks, leading to some concerns among investors about concentration risk. Wittmann acknowledged that risk, but remains bullish about broader upside potential in stocks.
“I think it’s on track, of course expectations get ever higher, so there will be at some stage disappointments here and…
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