The ongoing conflict between Israel and Iran has led to significant impacts on Asian markets and airlines, according to Morningstar’s latest analysis. Despite a de-escalation, geopolitical risks remain high, potentially affecting oil prices and airline operations. The conflict has caused temporary airspace closures, disrupting Europe-Asia routes, particularly for Singapore Airlines (SIA), which relies on Iranian airspace for efficient connections.
Morningstar’s Asia Equity Market Strategist, Kai Wang, highlighted that whilst oil prices have returned to pre-conflict levels, any future increases are expected to be short-lived. The report suggests investors should consider taking profits on overvalued technology and communication services stocks due to increased market volatility.
In the airline sector, Lorraine Tan, Director at Morningstar, noted that whilst SIA faced disruptions, the impact on its operations is minimal. Other airlines, such as ANA and Cathay, were unaffected as their routes do not pass over Iran. The temporary airspace closures may redirect some international flight demand towards SIA and Cathay, although demand is expected to normalise as tensions ease.
The report also touches on the potential economic implications for Japan, with the looming end of a 90-day pause on US tariffs. Lorraine Tan indicated that whilst the impact on Japanese equities is expected to be contained, the auto industry may face valuation declines due to thin margins.
Overall, Morningstar maintains its fair value estimates for the affected companies, anticipating minimal long-term impact from the current geopolitical tensions. The situation underscores the importance of monitoring geopolitical developments and their potential economic consequences.
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