3 days ago
Middle‑East Equities Face Choppy Waters Amid Israel‑Iran Strikes
Markets across the Middle East are bracing for heightened turbulence as Israel and Iran exchange strikes, triggering volatility in equity capital markets and clouding the outlook for initial public offerings this year.
Global equities have undergone vacillations following the escalation. Oil prices spiked more than 10% at one stage, driven by fears of supply disruptions through the Strait of Hormuz, before retreating as hopes of de‑escalation emerged. Despite this, oil remains elevated—currently hovering around $72‑76 a barrel—sustaining inflation worries and influencing central bank rate decisions.
Markets in the region have displayed mixed resilience. Israel's TA‑125 index hit record levels, propelled by expectations of fiscal and monetary easing, even as missile exchanges continue. The shekel has strengthened sharply, and Israeli bonds and CDS spreads have tightened, suggesting investor belief that hostilities might be contained before inflicting deeper market damage.
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Despite robust performance in Israel, regional markets and capital flows face uncertainty. Deal activity has remained intact, with IPO pipelines not yet deferred, yet bankers caution that rising geopolitical risk may damp appetite and cause market conditions to worsen for new equity issuance later in the year. The period following the summer break now appears increasingly fragile.
Analysts are cautious that equity valuations are exposed to shocks. RBC Capital Markets warns that prolonged conflict could result in a 20% contraction in the S&P 500—pushing it back toward the 4,800–5,200 range—due to squeezed price‑earnings multiples, weaker sentiment, and inflation‑driven rate risks. Deutsche Bank corroborates that geopolitical shocks have historically caused 6% sell‑offs in equities, though recovery often follows swiftly, barring a real economic downturn.
In India, markets have rebounded after two sessions of decline despite Middle East tensions and oil price pressure, drawing on strong domestic momentum. However, commentators note that sustained oil above $80 could strain the current account and inflation prospects.
Global central banks remain central to the evolving narrative. The Federal Reserve and Bank of England are expected to maintain steady rates as they weigh geopolitical and inflation signals. Themes of stagflation persist, with the World Bank having already downgraded global growth projections to 2.3% for 2025.
Looking ahead, markets will closely monitor diplomatic signals: reports of Iran seeking dialogue and returning to nuclear talks triggered a positive market response and this softening in risk sentiment lifted equities and eased oil prices. Should diplomacy make inroads, the volatility surrounding IPO deals may settle. Conversely, further military engagement—especially targeting oil infrastructure—could reignite market fears, pushing equities lower and tightening liquidity throughout the region.
Efforts of hedge funds and high‑net‑worth investors urging decisive intervention — such as proposals to dismantle Iran's nuclear capabilities — underscore deep‑rooted market anxieties. Yet such strategies remain politically contentious within the US Congress.
For now, regional equity capital markets are in a precarious state: operational, yet highly susceptible. Deal-making continues, but under growing pressure. Volatility will likely persist until either diplomatic breakthroughs emerge to defuse tensions or further military actions reshape risk perceptions globally.
