After the US and Iran agreed on a framework to end the conflict on Sunday evening, causing a drop in Brent crude oil prices, wealth managers discuss the impact on asset allocation, noting the positive impact for emerging markets, in particular.

On Sunday evening, the US and Iran agreed on a framework to stop the conflict, halt the US blockade of Iran, and reopen the Strait of Hormuz, one of the world's most important oil shipping routes. An official signing is scheduled for Friday in Switzerland, sparking a risk rally across Asian markets and pushing US and European equity futures up about 1 per cent to 2 per cent.

Brent crude oil fell 4.6 per cent on Monday morning to $83.3 a barrel, as a result – the lowest level since March – while Asia equities rose across the board. Futures for the Stoxx Europe 50 were up 1.6 per cent ahead of the European market open, while Nasdaq futures rose 1.8 per cent.

“Let the oil flow,” US President Donald Trump said on a social media post. European Commission President Ursula von der Leyen welcomed the agreement, saying it should allow for the immediate reopening of the Strait of Hormuz. However, she highlighted that energy dependencies have been weaponized. “We must diversify our supply routes and develop alternative export corridors to diversify away from the bottleneck of Hormuz,” she said.

Mark Haefele, chief investment officer at UBS Global Wealth Management also welcomed the deal as a positive development for the market, as inflation concerns have weighed on investor sentiment since the conflict started three and half months ago. “However, how quickly traffic through the strait can normalize and whether the deal can last remain to be seen. Issues such as Iran’s nuclear and ballistic missile programs remain unresolved,” he said in a note. He maintains his view that investors should stay positioned for long-term equity gains with a diversified exposure across sectors and geographies, while managing risks with a diversified portfolio across asset classes including bonds, commodities, and alternatives.

Meanwhile, the Bank of England is expected to keep interest rates at 3.75 per cent on Thursday, with lower oil prices easing inflationary pressures, unlike the European Central Bank (ECB) that raised rates last week to curb inflation.

Here are some reactions from wealth managers to the news:

Norbert Rücker, head economics and next generation research, Julius Baer
“There will be hiccups along the way, but the direction out of the crisis seems clear. The energy crisis has been much less threatening than feared, as markets once again have proven their resilience. While various questions remain open in the longer term, energy markets seem heading for the new-old setup, where oversupply dominates. We stick to our cautious view and see further pressure on oil prices. We stick to our neutral view on European natural gas, as replenishing the below-average inventories requires a price incentive.”

Richard Tang, head equity research analyst Asia, Julius Baer
“Asia as an oil-importing region should benefit from the deal to reopen the Strait of Hormuz. Early Monday trading indicates strong opens across all the North Asia markets including Japan and South Korea. Within South Asia, we think this may be a positive catalyst for India, which has been an underperformer in the region this year, partly because of its reliance on oil and energy. India remains our overweight market in the region.”

Chris Beauchamp, chief market analyst UK at investing and trading platform IG
"Looking at both BP and Shell, while they enjoyed an initial surge as the oil price went skywards, they have actually been losing ground since late March, a move bound to be connected to oil's inability to exceed the early March highs. As it became clear that the situation was unsustainable and that a deal was being sought, expectations of oil in the $150s and higher, matching the 2022 surge, have been trimmed. Now that a deal seems to be all but done, rotation out of oil majors should continue for the time being, as interest moves from the war's 'beneficiaries' to those set to gain from peace."

Lale Akoner, global market analyst at eToro
“For markets, the story is less about geopolitics and more about inflation. Lower oil prices could ease pressure on consumer prices, reducing one of the key risks facing central banks. The caveat is that markets are pricing in a lasting improvement in the situation. Any renewed tensions in the Middle East could quickly reverse some of the recent moves, particularly in energy markets. Investors should view this as a positive development for risk assets, but not necessarily a game changer. Lower oil prices and easing inflation concerns are supportive for equities and bonds, yet the bigger drivers remain economic growth, inflation trends and central bank policy. This week's US Federal Reserve meeting is likely to matter more for markets than the headline itself.”

Paulo Salazar, head of emerging markets at Candriam
“The Iran-US ceasefire/de-escalation scenario reinforces a macro backdrop that we have been discussing with investors in the past couple of weeks: lower geopolitical risk, softer oil prices, easing inflation pressures and a weaker dollar are a constructive environment for emerging markets. A sustained decline in oil prices should help bring headline inflation lower across many emerging market economies, giving central banks additional room to ease policy and improve domestic financial conditions.

“The weakening dollar is particularly supportive for emerging market assets. Historically, periods of dollar softness have coincided with stronger emerging market equity and local currency performance, as external financing conditions improve and capital flows broaden beyond the US. Lower energy prices act as a positive terms-of-trade shock for net oil importers, supporting consumption, current accounts and corporate profitability across several emerging market regions. We continue to believe that this environment could trigger a rotation within emerging market equities. The energy sector, which outperformed during the recent geopolitical tensions, may give back some relative gains, while materials could benefit from improved global growth expectations and a normalization in commodity markets.

“Precious metals are also worth watching. The sector lagged expectations since the conflict began, despite elevated geopolitical uncertainty. As markets shift focus from war risk toward lower rates, a weaker dollar and improving liquidity conditions, precious metals could begin to catch up. Regionally, we see particular beneficiaries among net oil-importing markets, including parts of Asia, as well as countries such as South Africa. In Latin America, lower inflation and easier global financial conditions should also be supportive, especially where central banks retain room to continue easing cycles.

“Overall, the combination of softer oil prices, declining inflation, easier monetary conditions and a weaker dollar represents one of the most constructive macro setups for emerging markets that we have seen in recent quarters, and is broadly consistent with the framework we have been presenting to investors over the past few weeks.”