Market Update: What Does The Middle East Conflict Mean for My KiwiSaver Or Investment?

It’s been some week! And it’s definitely been hard to avoid the headlines. In case you’ve missed it, the United States and Israel have launched coordinated military strikes against Iran, who have in turn retaliated with missile strikes at US locations across the region, with the whole situation having escalated quickly into a broader regional conflict within the Middle East. Trump has indicated that this could continue for weeks and markets have responded swiftly.

One of the important factors in this conflict is potential disruption in the Strait of Hormuz, off the coast of Iran, which is a really important location in terms of the global supply of oil: approximately 20 million barrels pass through a day! There has already been a significant decline in traffic through the Strait and oil prices climbed toward US$80 per barrel amid concerns about the disruption to the global oil supply. Share markets initially fell, partially recovered, and then pulled back again as investors reacted to uncertainty.

Why Are Markets Moving?

Geopolitical shocks often cause short-term volatility. Simply put, volatility is how dramatically the price of an asset (such as a stock) moves up or down. The conflict in the Middle East is likely to impact the supply, and therefore price of oil. Lower supply of oil, coupled with maintained demand, will cause an increase in oil prices, which can:

• Increase inflation

• Increase costs for businesses

• Impact global share markets

• Put pressure on bonds if inflation expectations rise

Contact a Naked Finance adviser for more information

Three Possible Outcomes

The unknown outcome and timeline in relation to the conflict in the Middle East are adding to the uncertainty, along with disruption to shipping, air travel and regional infrastructure. Global markets remain sensitive to sustained energy price increases.

While no one can predict the exact outcome, there are three broad scenarios to look out for:

1. Base: Oil remains below ~US$80. Markets are volatile in the short term but broadly stable over time.

2. Good Scenario: Tensions ease quickly, conflict is resolved, oil falls back toward ~US$60, and markets rebound.

3.   Worst Case: Oil rises above US$100 for a sustained period, increasing recession risks and driving up inflation, leading to sharper market declines.

Remember, markets are reacting primarily to uncertainty rather than confirmed economic damage.

What The Middle East Conflict Means For Your KiwiSaver & Investments

You may log in to check your KiwiSaver or investment balances and see that they are a little lower than usual. We know that this can feel scary but we’d like to reassure you that volatility is a normal and expected part of investing, especially in growth assets like shares.

It’s important to remember:

• Markets are looking forward, and volatility is often the reaction to uncertainty over what will happen in the short term.

• Trying to “jump in and out” of markets rarely works. You must get two decisions right: when to exit and when to re-enter.

• Missing even a handful of strong recovery days can massively damage your long-term returns.

You may have heard of the phrase “locking in losses.” Selling during short-term volatility (i.e. withdrawing investment funds, or moving from a growth to a more conservative fund) can turn temporary declines into permanent outcomes, and you risk missing the rebound.

Stay Focused on What You Can Control

The key questions to ask:

• Has your investment timeframe changed?

• Has your risk tolerance changed?

• Do you need immediate short-term access to your funds?

If the answer to these questions is no, then reacting to short-term noise may do more harm than good.

History shows us that patient, disciplined investors will generally be rewarded for staying invested through periods of stress. Business and company performance, and long-term economic growth matter far more over time than temporary geopolitical shocks.

We’re Here If You Need Reassurance

However, we understand that headlines like we’ve seen this week can feel unsettling. If you’d like to talk through your investment portfolio, your KiwiSaver settings, or simply sense-check your current investments, we’re here to help.

Sometimes a quick catch up is exactly what’s needed to stay on track so please don’t hesitate to get in touch.