The recent surge in global oil prices is expected to be a short-term disruption lasting only four to six weeks, according to Standard Chartered, which remains “overweight” on equities and gold despite ongoing geopolitical tensions.
Speaking at a virtual media roundtable, Manpreet Gill, chief investment officer for Africa, Middle East, and Europe at Standard Chartered, shared the bank’s second quarter global market outlook, highlighting a “scenario-based approach” to the current volatility.”
There is a big difference in terms of the impact on global economic growth and inflation risks of an oil price rise that lasts a few weeks versus one that lasts a few months,” Gill said.
“Our base case continues to be that this rise in oil prices ends up being relatively short-lived.”
The bank is advising investors to “look through” the daily headline noise. While a prolonged conflict remains a downside risk, Standard Chartered has not altered its headline portfolio strategy, which remains overweight on global equities and gold, funded by an underweight position in cash.
To hedge against more difficult scenarios, the bank has utilised inflation-protected bonds and energy-sector equities.
“Our big-picture view is not to make any changes to our headline portfolio, which is ultimately geared toward overweight equities and gold,” Gill added.
Within the equity market, the bank is particularly bullish on the technology sector, specifically semiconductors.
Gill noted that recent price corrections in US software and tech have brought valuations back to 2019 levels, creating an attractive entry point for investors who are currently under-exposed. Regionally, the bank remains overweight on Asian equities, specifically India, Taiwan, and China.
While these markets are highly sensitive to energy prices, they are expected to see the largest gains if oil prices retreat and the US dollar stabilises.
Standard Chartered identified the five to seven-year maturity bucket as the “sweet spot.” This range allows investors to lock in high yields while remaining neutral towards long-term inflation risks that could disproportionately affect 30-year bonds.
The bank also recently upgraded developed market high-yield bonds (US and Europe) to overweight, citing strong corporate credit quality despite the modest widening of yield premiums.
On the currency front, Gill observed that the US Dollar Index (DXY) has hit a psychological ceiling at the 104 level.
“The market so far continues to see this as a relatively short-lived disruption,” he said.
“If we are right about oil prices not staying at very high levels for an extended period, the Fed may very well quickly get back to a world where they can once again consider cutting interest rates.
Addressing questions on the regional renewable energy market, Gill noted that the current crisis has re-ignited interest in the sector as a mechanical necessity for energy security. While previous “euphoria” had led to overvaluation, he suggested that the current environment represents a timely moment to reconsider renewables as part of a diversified investment portfolio.
Standard Chartered has for the first time included a small allocation to digital assets in its model portfolios, citing institutional demand and new investment vehicles like ETFs as key drivers for the asset class.
Gill revealed that the bank has introduced a 2 per cent allocation to digital assets – the minimum threshold required to influence portfolio performance.
Acknowledging the difficulty in setting a price target for Bitcoin, Gill noted that the bank’s decision was based on “flows and reallocation” rather than traditional valuation.
“We’ve struggled with the idea of valuation in Bitcoin since day one,” Gill admitted. “But we are seeing big supportive flows from more and more investors coming into the asset class. With the implementation of ETFs and institutional managers considering small allocations, we believe it is worth tipping our toes in.”
He added that while Bitcoin volatility remains high, it is currently within historical norms. The 2pc allocation is intended to capture potential upside from supply-and-demand dynamics without over-exposing the broader portfolio.
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