Industry Updates

Energy ETCs bounce on Israel-Hamas conflict

Defensive stocks rally as investors turn cautious

Theo Andrew

Oil rigs and charts

Energy exchange-traded commodities (ETCs) spiked yesterday after the war between Israel and Hamas led to a surge in oil prices.

The world’s largest oil ETC, the $2.1bn WisdomTree Brent Crude Oil ETC (BRNT) rose by 3.8% as trading opened on Monday after the oil price jumped above $87 a barrel following Hamas’ surprise attack on Israel on Saturday.

Energy sector ETFs also jumped on the news, with iShares MSCI World Energy Sector UCITS ETF (WENS) and the Xtrackers MSCI USA Energy UCITS ETF (XSEN) up 3.3% and 2.8%, respectively.

Elsewhere, the WisdomTree Energy ETC (AIGE) spiked by 3.4% as concerns the conflict could spread to other parts of the Middle East drove prices higher.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said a long war between the two nations could bring Iran into the conflict, creating another supply shock within the energy sector.

“This latest jump will fuel inflationary worries, at a time when investors are already jittery about the interest rates potentially staying higher for longer.”

Norman Villamin, group chief strategist at Union Bancaire Privée, added the energy sector could act as a “safe haven” for investors as uncertainty in the region increases.

“With energy equities historically cheap on an absolute basis and relative to the broader market, the sector may offer a safe haven amidst the geopolitical uncertainty introduced over the weekend.”

Other defensive sectors have also been performing strongly on the news, with gold jumping almost 2% since Friday, boosting gold ETCs such as the $13.4bn Invesco Physical Gold ETC (SGLD) and the $12.5bn iShares Physical Gold ETC (SGLN).

Peter Garnry, head of equity strategy at Saxo Bank, believes the conflict will be negative for equity markets but said sectors such as utilities, consumer staples and health care could move higher.

He added thematics including cybersecurity, defence and logistics could all see valuations rise following the conflict due to larger military spending by the US and Europe.

“Logistics stocks could be bid because the conflict is raising the risks around using the Suez Canal as a transport route and some shipping companies in crude oil, LNG, and containers (consumer goods) might re-route south of Africa making transportation more expensive,” Garnry said.