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Investing.com -- UBS analysts said in a note Monday that markets tend to overreact to geopolitical shocks, and the current Middle East tensions may be no exception.
“Over 37 years as a strategist, markets most of the time initially overreact to political events,” the firm noted, citing past episodes such as Brexit, Trump’s election, and the 1989 Tiananmen Square (NYSE:XYZ) crackdown.
UBS emphasised that the current Middle East conflict is "very very far removed" from historical oil disruptions like Iraq’s 1990 invasion of Kuwait or the 1979 Iranian revolution, which had far larger impacts on global oil supply and prices.
While oil prices have edged higher, UBS downplayed the threat to supply. “Iran exports around 1.7mbd of oil… or c1.6% of global supply,” and “there are no press reports of oil production being hit or targeted,” the analysts said.
OPEC spare capacity is said to remain ample, with "c6mbd of stated spare capacity."
On equities, UBS would recommend "buying into weakness." The firm expects only a “mild” near-term pullback and assigns more weight to bullish scenarios in its MSCI AC World projections, with its “Bubble Scenario” implying a 16% upside.
UBS also recommended staying long in defence and gold stocks. “We have long been overweight gold stocks,” the firm said, forecasting $3,500/oz gold by end-2025 and continues to see “significant upside risk to this.”
Meanwhile, “defence is secular ’non-cyclical’ growth,” UBS added, supporting European defence exposure.
Overall, UBS maintains that markets may be overpricing risk. “We see no reason to alter any of our views on this at the current junction,” the analysts wrote. Instead, policy easing, resilient wage growth, and AI-driven productivity gains remain key market supports.