In­vestors not let­ting their guard down

Business Standard - - WORLD - NETTY IS­MAIL

The US-led mil­i­tary strikes in Syria on Fri­day may have been met with a col­lec­tive sigh of re­lief in global mar­kets, but in­vestors are hardly let­ting their guard down as US-Rus­sia ten­sions sim­mer.

Al­though haven as­sets such as gold and US Trea­suries aren’t ris­ing, stocks in Asia re­lin­quished ear­lier gains. Rus­sian mar­kets them­selves also re­treated, with bonds, the ru­ble and stocks de­clin­ing af­ter the US said it will im­pose fresh sanc­tions on Moscow fol­low­ing Syria’s re­ported use of chem­i­cal weapons.

“In­vestors don’t ex­pect any sig­nif­i­cant es­ca­la­tion of mil­i­tary ac­tiv­ity be­tween the West and Syria’s gov­ern­ment and its main back­ers, Rus­sia and Iran,” said Man­soor Mo­hi­ud­din, head of cur­rency strat­egy at NatWest Mar­kets in Sin­ga­pore. “What would make in­vestors con­cerned again would be a re­sponse from the Syr­ian gov­ern­ment or its al­lies that broad­ens the con­flict be­yond Syria’s borders.”

US Pres­i­dent Don­ald Trump de­clared “mis­sion ac­com­plished” via Twit­ter on Satur­day, a day af­ter the US, France and the UK car­ried out strikes in re­sponse to Syr­ian leader Bashar al-As­sad’s sus­pected chem­i­cal at­tack on civil­ians. US oil fu­tures fell back be­low $67 a bar­rel as there was no sig­nif­i­cant re­sponse to the mis­sile at­tack. Stocks across most Arab mar­kets ex­tended their gains from Sun­day, while US stock fu­tures in­di­cated a higher open­ing Mon­day.

“It will be risk-on to­day it seems, as don’t-know-hum­mus-fromHa­mas op­ti­mists were right, and gloomy ‘WW3’ pun­dits were wrong,” Michael Ev­ery, head of Asia fi­nan­cial mar­kets re­search at Rabobank in Lon­don, wrote in a re­port. “How­ever, there is still a big dif­fer­ence be­tween a risk-on trade and as­sum­ing that un­der­ly­ing risks have ac­tu­ally gone away. Af­ter all, the Mid­dle East re­mains a pow­der-keg.”

His­tory shows that a US-led at­tack on Syria doesn’t nec­es­sar­ily send in­vestors run­ning for cover. Af­ter the pre­vi­ous bomb­ing on April 7, 2017, the MSCI All Coun­try World In­dex fin­ished the day lit­tle changed. And US Trea­suries, typ­i­cally a haven, fell, with yields on 10-year notes climb­ing 4 ba­sis points.

While the 10-year yield rose 3 ba­sis points to 2.86 per cent Mon­day, it’s still be­low the four-year high of 2.95 per cent reached on Fe­bru­ary 21. That re­flects the lin­ger­ing geopo­lit­i­cal ten­sion, ac­cord­ing to Arqaam Cap­i­tal.

“Un­less it’s a ma­jor and a longterm event, the mar­ket has got­ten numbed to re­gional geopol­i­tics,” said Ab­dul Kadir Hus­sain, the head of fixed in­come at Dubai-based Arqaam Cap­i­tal. “How­ever, I would ar­gue that on a global ba­sis, one of the rea­sons US Trea­suries are at these lev­els is be­cause of global geopol­i­tics and that would in­clude Syria. There is no other rea­son for the 10-year not to be a lot closer to 3 per cent.”

Al­though haven as­sets such as gold and US Trea­suries are not ris­ing, stocks in Asia re­lin­quished ear­lier gains

PHOTO: AP/PTI

Dam­aged build­ings in Douma, the site of a sus­pected chem­i­cal weapons at­tack. Rus­sia and Syria have not yet al­lowed a fact-find­ing mis­sion from the world's chem­i­cal weapons watch­dog to enter Douma

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