Energy, Defense Stocks Jump as Iran Attack Jolts Global Markets
Photographer: Jeff Kowalsky/Bloomberg
(Bloomberg) — Energy and defense stocks jumped while airlines slid across Asia, as global equities opened the week in risk-off mode following US and Israeli strikes on Iran.
Investors are grappling with the risk that the conflict in the Middle East could disrupt global energy supplies and stoke inflation. The reaction was most pronounced in oil, with Brent crude surging as much as 13% before paring gains. Asian equities trimmed earlier losses after Iran’s security chief made a fresh push to resume nuclear talks with Washington, the Wall Street Journal reported.
Most Read from Bloomberg
Within sectors, energy producers gained as surging crude prices lifted the outlook for revenues, while defense firms climbed on expectations of increased military spending. Airlines, by contrast, came under pressure on concerns that surging fuel costs and possible airspace disruptions would hit the travel sector.
“Equity markets are likely to fully shift to oil prices as a primary driver of price action,” said Michael Kantrowitz, chief investment strategist at Piper Sandler & Co. “Equities will be under pressure until oil prices stop rising.”
US and European stock index futures fell. S&P 500 and Nasdaq 100 futures were down about 0.7% each as of 11:30 a.m. Monday Hong Kong time, trimming earlier losses of more than 1%. MSCI AC Asia Pacific Index slumped as much as 1.6%. Euro Stoxx 50 futures pared their declines to 1.5%.
Citigroup Inc. upgraded UK equities to overweight from underweight, saying the market is tilted heavily toward commodities and defensive sectors and serves as an effective “geopolitical hedge.” The bank downgraded Japan to underweight from overweight.
As trading kicks off in markets across Asia, Europe and the US, here are the sectors to watch:
Energy
Major energy companies saw strong gains across Asia, with Australia’s Woodside Energy Group Ltd. and Hong Kong-listed PetroChina soaring as much as 11% and 5.9%, respectively. Investors will also be watching global oil majors including Exxon Mobil Corp., Chevron Corp., Shell Plc, TotalEnergies SE, Repsol SA, BP Plc.
“It’s just a matter of what impact will Iran’s response have on the global oil supply — at least temporarily, and then maybe longer term,” said Rob Thummel, a portfolio manager at Tortoise Capital. Any spike in prices could prove short-lived if supplies aren’t severely disrupted, he said. In one scenario Thummel sees as less likely, a prolonged closure of the Strait of Hormuz could push prices above $100 per barrel.
Iran has said it doesn’t intend to shut the waterway, which accounts for some 20% of global oil flows, but there are signs that tanker traffic through the chokepoint is halting.
Oil tankers are are also poised to benefit, Thummel said. On the flip side, higher crude prices typically squeeze the margins of refiners such as Marathon Petroleum Corp. and Valero Energy Corp.
Defense
Defense stocks have rallied over the past year as global tensions intensified, and the latest conflict in the Middle East is giving investors another reason to pile into the sector. In Asia, Japan’s Hosoya Pyro-Engineering Co. surged as much as 20%, while China’s J-35 stealth fighter maker Avic Shenyang Aircraft Company Ltd. and drone-maker AVIC Chengdu UAS Co. climbed as much as 5.4% and 20%, respectively. Taiwan’s Aerospace Industrial Development Corp. rose 5.8%.
Investors are also likely to focus on US prime contractors such as Lockheed Martin Corp. and Northrop Grumman Corp., as well as Europe’s Rheinmetall AG and BAE Systems Plc,
“The market will take this as broadly positive for European defense stocks,” MWB Research analyst Jens-Peter Rieck said, though “any move is likely to be driven more by sentiment than by changes to earnings estimates.”
President Donald Trump has already pushed European and Asian allies to spend more on their security, and he’s proposed an increase of some $500 billion in US military outlays.
The desire for more military funding may now spread to the Middle East, according to Jefferies analyst Sheila Kahyaoglu. US contractors would capture much of that new business from the region, which already accounts for a chunk of their foreign military sales, she said.
Precious Metals
Investors typically turn to safe-haven assets like gold and silver during periods of geopolitical uncertainty, a move that tends to lift mining stocks. Precious metal prices, especially gold and silver — already on a searing rally over the past year — started marching higher in the weeks before the Iran conflict.
Australia’s Genesis Minerals Ltd. gained as much as 8.6%, while Chifeng Jilong Gold Mining Co. in Hong Kong surged 6.4%.
Stocks to watch include Agnico Eagle Mines Ltd., Barrick Mining Corp., and Newmont Corp. in North America, Europe’s Fresnillo Plc and Hochschild Mining Plc. The Canadian equity benchmark — S&P/TSX Composite Index — may outperform on Monday given its huge exposure to mining and energy sectors that make up about 38% of the gauge.
Travel and Transportation
Higher oil prices can raise airlines’ fuel costs and squeeze margins, while escalating tensions risk disrupting global travel demand and operations. US airline stocks tumbled the most since April on Friday in anticipation of the conflict. Carriers across the Persian Gulf have extended flight suspensions, which could disrupt the finely-tuned choreography of global aircraft movements.
In Asia, Qantas Airways Ltd. in Australia slumped as much as 10%, Japan Airlines Co. dropped 7.1% in Tokyo and Singapore Airlines Ltd. fell 7.5%.
Investors will be watching stocks including US-listed American Airlines Group Inc. and Delta Air Lines Inc. and Germany’s Deutsche Lufthansa AG.
“The immediate impact will be on airline and travel stocks as we see news from closures of airspace over the Middle East, and also potentially cancellations of flights that needed to use the airspace en route to Europe,” said Francis Tan, chief Asia strategist at CA Indosuez Wealth Asset Management.
Each 5% change in Jefferies’ estimate for fuel prices in 2026 translates to a 5% to 10% impact on Delta’s and United Airlines Holdings Inc.’s earnings per share. For American, it represents a 35% impact in either direction, according to analyst Kahyaoglu. Still, the North American carriers have “minimal” direct exposure to Middle East travel, she added, with Air Canada the highest at 1.1% of its capacity.
Hotel operators could be hurt by travel disruptions and reduced demand. InterContinental Hotels Group Plc operates more than 100 hotels across the region, and its shares fell 3% in London on Friday.
The closing of Middle East airspace also threatens the margins of freight carriers such as FedEx Corp., United Parcel Service Inc. and DHL Group, as longer transit times would drive up fuel costs, according to Bloomberg Intelligence’s Lee Klaskow. On the other hand, snags in transport through the Red Sea and Suez Canal can allow container shippers such as AP Moller-Maersk A/S to charge more for their services.
–With assistance from Isolde MacDonogh, Julien Ponthus, Levin Stamm, Abhishek Vishnoi, Winnie Hsu, Paul Jarvis, Neil Campling, Monique Mulima, Peyton Forte, Arvelisse Bonilla Ramos, Alexandra Semenova and Natalia Kniazhevich.
