(Bloomberg) - A prolonged Iran war is a risk to the bank-stock powered rallies in Japan and Europe as investors abandon these markets in favor of exposure to oil and the US dollar, Bank of America’s Michael Hartnett said.
Investors are likely to shift to assets that are “beneficiaries of extended conflict,” at the expense of “oil importers with minimal energy equity exposure,” such as Korea, Japan and Europe, the strategist said. US technology and global defense are among sectors that could gain during this rotation.
It’s a scenario that has already started playing out since the US and Israel launched their attacks against Iran and as the conflict has spread. European stocks are on course for their worst weekly drop since last April’s tariff turmoil and the same is true of Japan’s Nikkei 225 index. Volatile trading in Korean equities saw the Kospi index notch both a record decline and the biggest gain since 2008.
The war has entered a seventh day, with investors focused on the near-total halt to energy shipments through the crucial Strait of Hormuz. Hartnett said further escalation of the conflict could include an “all-in” effort from America to “secure oil supply to power US AI supremacy.”
The outbreak of war threatens to upend a long-standing call by Hartnett to favor assets outside the US. The strategist has maintained a preference for international equities since late 2024, a recommendation that proved prescient as the S&P 500’s 15% gain over that period trailed an advance of 33% in the MSCI ACWI ex-US Index.
By Rose Henderson
