The Money Show | The impact of current geopolitics on markets

Our Head of Equity Research, Meryl Pick, was on 702’s The Money Show sharing insights on what is happening in the Middle East and the financial implications. The immediate impact is seen on oil prices due to geopolitical tension, which could lead to potential inflation. Meryl advises that it is important to evaluate dependencies on affected regions like Israel; assess potential impacts on supply chains, tech startups, and exports. 

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Transcript

The Money Show  00:01

The Money Show with Bruce Whitfield is brought to you by Absa CIB, driving action led insights that create impact when actioned with collaboration through the insights series. Absa is a registered FSP.

Bruce Whitfield  00:19

Meryl Pick will be joining us in just a moment. Gold Fields, it operates its only mine in South Africa, it's  South Deep. It's appointed a new Chief Executive, the previous guy was there for a year, I think. Yeah, only about a year. Michael Fraser, who's a South African, is currently the CEO of an AIM-listed gold company called Chaarat Gold. Previously worked at South 32. His job to find new gold deposits. So, the company which still has its headquarters in South Africa, is looking for new mines in places like Chile and Canada, where there are still decent gold reserves worth exploiting. Let's get hold of Meryl Pick this evening, Portfolio Manager at the Old Mutual Investment Group. From an investment perspective, anything worrying you about the next couple of weeks, Meryl, in the Middle East?

Meryl Pick  01:09

Good evening, Bruce, and good evening to your listeners. I think as previous callers have highlighted, immediate impact we're seeing is on the oil price. I think already the oil market has been tight and volatile and responding to production cuts out of OPEC+. So clearly, the market and traders are looking ahead, historically any conflict in the Middle East has had negative impact on supply. And I think any moves to sustain a higher for longer oil price will feed through into inflation and almost every other commodity. So, that is the one thing to watch. I think it also just adds to the number of areas of conflict globally, and the level of geopolitical tension globally, whether the West will have, you know, appetite to throw their weight behind or get involved in this conflict in any way, given already debate about how much more money to allocate from defense spending towards Ukraine. That will remain to be seen. This might remain quite isolated and regional.

Bruce Whitfield  02:25

Certainly, the market is betting on that for now. And it is as our guests have said this evening, and you're intimating this evening, it's all about who reacts and how they react and what the consequences of those reactions might be. The most serious of which is a throttling of global oil supply, for example, which becomes inflationary. And then central banks feel the need to respond with higher interest rates in an environment where growth is very hard to come by anyway, and then finally tip us all into a recessionary environment. And that causes its own kind of shake up. In the short term, great for commodities, generally, in terms of the shares. And it's weird to be celebrating gains in share prices in a day of horror and bloodshed. But that's the way markets work. They respond to what is happening in the world around them.

Meryl Pick  03:10

Unfortunately, so. So, you know, we've seen the oil price and the precious metals rally today. So, in particularly, something like Sasol is up 6%, something like Harmony Gold, which is highly leveraged to the gold price is up nearly 8%. And then the PGMs, showing their, you know, their characteristics, they have a bit of investment demand, as well. And they're not as strong as gold today, but still up. I think what will be interesting, you know, I think what caught us off guard with Ukraine, markets as a whole perhaps, or certainly certain camps of the market, was which supply chains were dependent on Ukraine, and only as that conflict became drawn out and escalated, you know, we scrambled to learn about Ukraine. So, and we made similar assumptions with Ukraine that this would be a quick and short-lived thing. The scale of this attack does seem to be, or conflict does seem to be catching the world off guard. So, I wouldn't be too complacent. And I would just spend the next two or three days figuring out, right, what are the dependencies on Israel, for example, here and there anecdotally, there are, you know, tech startups, certain technologies that are supported or incubated in Israel. Does this conflict have an impact or not? So, I think before being too complacent, it is worth checking with the holding companies, etc. How does this actually affect you? Might find specific agricultural products being exported from there. So, I think it's always worth doing homework when something like this happens.

Bruce Whitfield  04:50

Meryl, thank you. Meryl Pick is Portfolio Manager at the Old Mutual Investment Group, on the line to us from Cape Town this evening.

The Money Show  04:58

The Money Show with Bruce Whitfield was brought to you by Absa CIB, driving action led insights that create impact when actioned with collaboration through the insights series. Absa is a registered FSP.