Morgan Stanley Strategists Say Geopolitical Selloffs Are Short-Lived

As of June 23, the attacks on the nuclear installation in Iran by the US have grabbed the attention of the world media, leaving the investors and analysts wondering. Such geopolitical incidents tend to cause a chaotic market, as traders respond to the uncertainty caused by such stern overtures. Nonetheless, the strategists at Morgan Stanley reckon that selloffs do not last long. This is because they are instigated by geopolitical events, and they offer temporary disruption rather than a decline. Analysts at the firm, led by Michael Wilson, foresee that although the geopolitical drama that occurs during such events is real, the market responds to it and soon subsides. This has significant implications for investors who have been exposed to short-term volatility amid geopolitical risks.

The Geopolitical Event: US Strikes on Iran’s Nuclear Facilities

The war between the US and Iran came to the forefront when the US military force bombed the nuclear plants of Iran. These raids instantly raised an outcry, fueling fears of military retaliation and further tensions in a region already fraught with deceit. The shareholders, particularly those in the energy and defense industries, responded instantly. This came as the price of crude oil shot up dramatically, and the stock markets registered marked declines in the short term. Fragments of the risk of a long-lasting conflict lead to the risk of further destabilization in the Middle East. This has the potential to disrupt global trade routes, energy prices, and expand its impact on the global economy.

Michael Wilson of Morgan Stanley is more cautious in his view. Wilson says that the way the market responds to these geopolitical shocks has been largely predictable. In that, an initial sell-off is expected to be followed by a quick recovery as investors adjust to the new geopolitical reality. Past experience has shown that they do not cause irreparable harm to the economy unless they take the form of full-scale wars or have a major destabilizing impact on the world markets.

The Short-Term Nature of Geopolitical Selloffs

Morgan Stanley analysts suggest that a sell-off triggered by geopolitical developments, such as U.S. attacks against Iran, is typically of a transitory nature. The first wave typically means that traders react and move back in fear of the worst. However, such fears usually recede as the situation stabilizes or more clarity is gained from it. Consequently, such sell-offs are mainly buying opportunities for long-term investors who are able to tolerate short-term turbulence.

Traditionally, the stock market can rarely decline on a long-term basis because of geopolitical selloffs. The market has recovered promptly after every incident that has taken place in the past few decades. This includes the military conflicts in the Middle East and the tensions in Eastern Europe. Wilson notes that the markets tend to adapt very quickly, where investors usually refocus on more underlying macro risks.

The Morgan Stanley Perspective: Navigating Market Volatility

The forecast also considers that the markets may be calm initially, and it suggests that the short-term influence of geopolitical events is possible. Morgan Stanley still advises that investors should focus on a broader framework. The company indicates that these events may be disruptive in the short term but seldom alter the broader picture of global development. The past market behaviors, as observed by Wilson, demonstrate that as soon as the market has taken into consideration the geopolitical shock, it will tend to revert to its bullish nature.

Investors will take this to imply that knee-jerk reactions to geopolitical selloffs may not be the most appropriate strategy all the time. Moreover, the company promotes strategic positioning, aiming to pay less attention to outstanding Zeniths or brief market downturns. According to the outlook provided by Morgan Stanley, the prevailing situation between the US and Iran is unlikely to have a long-term impact on the global economy unless it escalates further.