<\/p>\n
The basic assumptions that have underpinned hedging strategies for decades are coming undone by the escalating war in Iran.<\/p>\n
Government bonds, which typically rise during periods of market stress to cushion equity losses, are now moving in the same direction with stocks as oil markets are going through unprecedented turmoil. On Thursday, for example, bonds fell, sending two-year US yields up about 9 basis points to their highest level since August, while the S&P 500 Index dropped 1.5%.<\/p>\n
That has forced fund managers to look beyond traditional playbooks. The strategies that have emerged since include selected equities, as well as option overlays and some more esoteric corners of the credit market, in addition to the dollar. Chinese stocks and the Australian dollar are among the targets, while commodities like aluminium and soybean oil have seen an uptick in demand.<\/p>\n
At the heart of the reordering is the rising anxiety of a stagflationary shock if a lasting oil-price increase ignites inflation and undercuts global economic growth at the same time. Such a scenario will make the usual policy response of aggressive rate cuts unavailable in case of an economic downturn. Without central bank action, the traditional 60\/40 portfolio may once again fail to deliver.<\/p>\n
\u201cSince correlations have shifted, the obvious rebalancing between equities and bonds, and instruments such as inflation-linked bonds and gold isn\u2019t protecting portfolios,\u201d said Rajeev de Mello, a global macro portfolio manager at Gama Asset Management. \u201cThe opportunity set for effective risk diversifiers has narrowed materially.\u201d<\/p>\n<\/p>\n
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Goldman Sachs Asset Management has reduced portfolio sensitivity to market moves with non-linear equity downside protection \u2014 strategies that limit losses in case of a large-scale selloff \u2014 credit hedges, and deploying more cash to risk hedging strategies.<\/p>\n
Invesco has recommended buying commodities shipped through the Strait of Hormuz, including aluminium and grains, while Gama Asset Management has raised dollar cash and hedging via equity futures. Pictet Asset Management\u2019s multi-asset team has cut equities, added put options on stocks and corporate bonds, while increasing dollar exposure.<\/p>\n
Pockets of safety<\/p>\n
As investors try to pinpoint pockets of safety, a multi-theme defence spanning stocks exposed to nuclear energy and the digital economy is gaining traction in Asia, according to Bloomberg Intelligence strategists, including Shirley Wong.<\/p>\n
\u201cInvestors should look at a combination of up-in-quality trades in equity, credit and currencies, \u00a0allocations to alternatives, dynamic risk allocation, and option overlays in equities and across assets,\u201d according to strategists, including Christian Mueller-Glissmann, the head of asset allocation research at Goldman Sachs\u2019 Global Investment Research division.<\/p>\n
They like selective bearish option spreads, calls on the Euro Stoxx 50 Volatility Index, and puts on European industrials and German equities.<\/p>\n
A popular move has been to increase exposure to the US dollar to wait out the market palpitations. Glissmann and his team at Goldman Sachs have turned tactically neutral on stocks and overweight on cash, citing mounting risks that the Middle East conflict may spark an energy shock comparable to those of the 1970s.<\/p>\n
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\u201cIt still feels early to reposition aggressively, especially as recent price action has been quite choppy and would have penalized overly decisive changes,\u201d said Fesa Wibawa, a Singapore-based investment manager at Aberdeen. \u201cWe have made some light adjustments to currency risk, using valuation and relative fundamentals as our main guide, while largely looking through near\u2011term volatility.\u201d<\/p>\n
Dollar positioning<\/p>\n
But unlike in 2022, when Russia\u2019s invasion of Ukraine also sparked energy-led market turmoil, the reversal this time is catching a market that was positioned for dollar weakness. The Bloomberg Dollar Spot Index is near its strongest in almost two months and option metrics show traders are betting it can rise to its highest level since December.<\/p>\n
\u201cWhen you look at the dollar pre-war,\u201d the dominant stance was \u201chedging America,\u201d said Mitul Kotecha, a Barclays Bank strategist in an interview with Bloomberg Television on Wednesday. \u201cNow, it suddenly looks like the dollar\u2019s back as a safe haven\u201d and has rallied on the back of this.<\/p>\n
For dollar-funded investors, the costs of hedging currency risk have fallen to an average of 0.28% for eight major Asian currencies, the lowest in over a year, according to three-month forward implied yields compiled by Bloomberg.<\/p>\n<\/p>\n
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Chinese stocks have worked as a surprising haven, holding up on the logic that the country\u2019s more diversified energy supplies make it less reliant on Hormuz shipping lanes and oil imports. Meanwhile, Australia\u2019s dollar has become a refuge, supported by higher oil and gas prices and rising expectations of a near-term rate hike. Malaysia has been another under-the-radar target for its oil and commodities exposure and weakened correlation with other emerging markets, according to Nirgunan Tiruchelvam, an analyst at Aletheia Capital.<\/p>\n
Risk reduction<\/p>\n
\u201cWhen volatility spikes sharply, we often look to sell it rather than buy it, for example, by selling puts on assets we are comfortable owning at lower levels,\u201d said Mohit Mirpuri, a partner at SGMC Capital Pte. \u201cWe also maintain buffers through short-duration high-quality bonds and a meaningful allocation to precious metals such as gold and silver.\u201d<\/p>\n
Hironori Akizawa, a fund manager at Tokio Marine Asset Management said he has been raising cash levels as a prolonged Middle East crisis can raise the probability of stagflation. Danny Wong, chief executive officer of Areca Capital, is focusing on stocks tied to high dividends and local demand.<\/p>\n
With traditional correlations in flux, managers say flexibility and selectivity now matter more than textbook diversification.<\/p>\n
\u201cTraditional hedges aren\u2019t attracting the usual safe\u2011haven flows, so we are leaning less on broad cross\u2011asset hedges and more on selective stock picking and targeted equity risk management,\u201d said Gary Tan, a fund manager at Allspring Global Investments. \u201cWe have reduced active risk heading into March by raising some cash and rotating into defensives.\u201d<\/p>\n
\u00a9 2026 Bloomberg<\/p>\n
#Investors #hunt #hedges #war #shatters #decadesold #strategies<\/p>\n","protected":false},"excerpt":{"rendered":"
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