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Ways to Mitigate Exposure to Individual Risks, Including the Middle East Conflict

To mitigate exposure to individual risks, such as the ongoing conflict in the Middle East, analysts at UBS recommend a strategy that emphasizes diversification and targeted asset allocation.

The heightened tensions between Israel and Hezbollah in Lebanon have raised concerns about potential regional instability; however, the broader impact on global markets appears to be somewhat limited at this time. In the event of further escalation, particularly involving Iran and the U.S., disruptions to energy supplies could influence oil markets and increase global financial volatility.

“We emphasize the significance of diversified portfolios to minimize exposure to specific risks, while also advising investors to stay engaged to take advantage of the overall supportive macroeconomic landscape,” UBS analysts noted.

With potential disruptions to key oil supply routes, such as the Strait of Hormuz, investing in oil-related assets could provide a hedge against energy supply issues. Although oil prices have remained stable thus far, any significant disruption could lead to a surge in prices. Analysts anticipate that damage to critical oil infrastructure might cause Brent crude prices to exceed USD 100 per barrel for an extended period.

UBS also identifies gold as an essential asset to incorporate into portfolios during periods of geopolitical tension. With gold prices rising nearly 30% this year, further increases are expected due to anticipated rate cuts by the U.S. Federal Reserve, seasonal boosts in jewelry demand, and ongoing purchases by central banks. Gold is regarded as a safe haven amid market uncertainty, adding a stabilizing influence to a diversified investment portfolio.

Additionally, analysts advocate for maintaining exposure to high-quality credit assets, which can provide stability during market fluctuations. Despite the depreciation of the Israeli shekel due to the conflict, which exerts additional pressure on the country’s fiscal outlook, global markets should concentrate on broader economic factors, particularly if the conflict remains contained within the region.

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