I want to caveat upfront by stating that we are not military / defence experts. We are feeling our way through these events like everyone else and our views may change over the next few days and weeks. The best defence/preparation is proper portfolio construction and the avoidance of factor concentrations. Some key points:
- First and most importantly, we hope that Jupiter's clients in the region and their families, stay safe and well during this difficult time.
- Action in Iran had been increasingly flagged due to American presence in the region. However, the current events are likely to continue to push the UK and European countries to materially increase spending on defence. We believe that this supports the structural trends for defence stocks and associated beneficiaries of fiscal financing such as selected financial and physical infrastructure companies.
- The most significant risk to a number of large European economies (UK, Germany, Italy) is global gas prices. An ideological aversion to developing indigenous gas resources, a fast run down of coal power and luddite approaches to nuclear power has left a number of economies reliant on just- in- time, global gas deliveries compounded by a lack of gas storage in the UK case. With Russian gas (largely) no longer available, the UK, Germany and a number of other economies are very reliant on the LNG market and unfortunately Qatar is a large global LNG producer. Therefore, the cessation of Qatari production and shipping is leading to a large gas price spike, which will knock on into higher electricity prices and prove economically damaging if prolonged. We will be cautious about energy intensive companies reliant on gas as an input (e.g. energy heavy industrials, utility gencos).
- Bank stocks have reacted in the usual knee-jerk fashion, selling off as perceived risk assets. We think this is a ‘market mistake’ as banking sector balance sheets are in a completely different place than in prior periods of economic stress, with low levels of leverage, low loan-to-deposit ratios, and consumer and small business sectors that are lowly leveraged by historic standards. Whilst high gas prices will act as an economic drag, consumer sentiment is already low and precautionary savings very high, so we do not expect to see any material tick up in loan losses. Despite our concerns about short-term LNG gas supplies there is a wave of US LNG to hit the market in the next few years and with no structural shortage of oil, oil and gas prices are not likely to stay high once this crises is resolved so we are wary of energy stocks at current prices.
- The sell off and risk off in European equities may throw up some bargains in economically sensitive consumer stocks that hitherto we had found overvalued – e.g., luxury goods. We have no insight as to how this conflict ends: it could be highly significant geopolitically, or equally it could wind down once Iran’s military capabilities have been seriously degraded with the regime still left in place. We observe that in times of uncertainty global financial markets instinctively seek to hide in the US capital markets and the US dollar. This time is likely to be no different, so we are unsurprised to see US assets outperform in the short-term. However, we would note that this is against a backdrop of European equities having outperformed in the first few months of 2026. We would also note that political uncertainty driven by US policy, and the extraordinary concentration of global equity markets in a small number of US stocks remains.
Strategy risks
Currency (FX) Risk - The strategy can be exposed to different currencies and movements in foreign exchange rates can cause the value of investments to fall as well as rise.
Share Class Hedging Risk - The share class hedging process can cause the value of investments to fall due to market movements, rebalancing considerations and, in extreme circumstances, default by the counterparty providing the hedging contract.
Pricing Risk - Price movements in financial assets mean the value of assets can fall as well as rise, with this risk typically amplified in more volatile market conditions.
Market Concentration Risk (Geographical Region/Country) - Investing in a particular country or geographic region can cause the value of this investment to rise or fall more relative to investments whose focus is spread more globally in nature.
Derivative risk - the strategy may use derivatives to reduce costs and/or the overall risk of the strategy (this is also known as Efficient Portfolio Management or "EPM"). Derivatives involve a level of risk, however, for EPM they should not increase the overall riskiness of the strategy.
Liquidity Risk (general) - During difficult market conditions there may not be enough investors to buy and sell certain investments. This may have an impact on the value of the strategy.
Counterparty Default Risk - The risk of losses due to the default of a counterparty on a derivatives contract or a custodian that is safeguarding the strategy’s assets.
Important information
This is a marketing communication. This document is intended for investment professionals and is not for the use or benefit of other persons, including retail investors. This document is for informational purposes only and is not investment advice. The value of investments and income may go down as well as up and investors may not get back amounts originally invested. Exchange rate changes may cause the value of investments to fall as well as rise. Past performance does not predict future returns. The views expressed are those of the individuals mentioned at the time of writing, are not necessarily those of Jupiter as a whole, and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Company or holding examples are for illustrative purposes only and are not a recommendation to buy or sell. Every effort is made to ensure the accuracy of the information, but no assurance or warranties are given. Issued in the UK by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. No part of this document may be reproduced in any manner without the prior permission of JAM/JAMI.