Investing.com -- Geopolitical tensions in the Middle East are testing investor resilience, but Barclays (LON:BARC) believes the current crisis may ultimately present a buying opportunity.
In its latest market commentary, Barclays said that while "equities have been able to climb the wall of worry year-to-date, resilience is being tested once again."
Still, the note emphasized that “more fatigue&hedging than stress” has been evident so far.
Despite oil prices rallying, the broader market has shown little sign of panic. “Vix has only risen modestly, global equities and yields have remained mostly range-bound, and the dollar hasn’t rebounded,” the analysts noted.
Barclays warned, however, that a wider conflict, particularly involving the United States, “may come as a reality check to this market calm.”
Looking further ahead, the bank sees potential upside. “Recent crises in the region have showed that the impact on equities from oil shocks tend to be short lived, and usually end up as medium term buying opportunities,” the analysts wrote.
If the conflict leads to a resolution or greater regional stability, Barclays said, “it could be seen as bullish for risk assets over the medium term.”
Energy stocks have outperformed in recent weeks, with the sector benefiting as “a geopolitical hedge.”
Barclays sees room for further gains, noting “positioning in the energy complex remains depressed,” raising the potential for a short squeeze if tensions escalate. However, they remain cautious long-term, stating, “We remain sceptical of a structural re-rating of the Energy sector.”
By contrast, Barclays notes that Aerospace and Defence stocks have surged 61% year-to-date, though Barclays warned that valuations are now stretched ahead of next week’s NATO summit.