"Liberation Day" bonus burned by war! Iran's war reignites the US dollar "safe haven" throne, and the hottest trades of 2025 all fall apart.

Notice that it has been a year since the global financial markets stumbled due to the US President Trump's so-called "Liberation Day" tariff policy. The investment script triggered by this measure has now been put on hold. This is because the entry into the second month of the Iran war has sparked an unprecedented oil crisis, forcing the hot and crowded trades that have defined the market since April last year to be quickly liquidated. As risk appetite disappears, the global stock markets, which rebounded due to the AI boom and rate cuts, have evaporated about $14 trillion since the conflict began. The bond market has also experienced significant volatility as traders are forced to reprice rate prospects amidst rising inflation risks. Emerging markets, which have attracted funds with attractive valuations and solid growth prospects, are experiencing a withdrawal of capital due to their high dependence on oil imports. The Iran war is reshaping the global market landscape With the war shaking the Middle East, oil prices are soaring. The Strait of Hormuz, which usually carries about a fifth of global oil flow, has been closed to all vessels except for a few. Energy market consulting firm FGE NexantECA states that if the blockade of the waterway continues for the next six to eight weeks, oil prices could soar to $150 or $200 per barrel. On Tuesday, the US and Iran signaled seeking a resolution, prompting investors to reassess the prospects of the war. Trump stated that the US plans to withdraw from Iran within two to three weeks. However, even if the conflict ends during that time, it will take time for the Strait of Hormuz to return to normal navigation, especially as Trump added that he will leave the task of solving this critical waterway issue to other countries. "'Liberation Day' is a US-made policy shock, while the Iran war can be seen as an exogenous geopolitical shock," said Christy Tan, an investment strategist at Franklin Templeton in Singapore. "As long as the war continues, the Iran conflict will significantly push up prices through the energy complex and may eventually cause a bigger negative growth impact." While investors assess the impact of the oil crisis, the US dollar may offer the clearest interpretation of energy dynamics. The Bloomberg US Dollar Spot Index jumped 2.4% last month, marking its largest increase since July last year, benefiting from the US's position as the world's largest oil producer and the attractiveness of the dollar as a safe haven in times of global tension. In March, the US dollar strengthened against all major currencies, prompting global central banks to intervene in the markets, highlighting the broad range of damage caused by the war. During the Iran war, US stocks fell less than other global markets Meanwhile, US stocks have performed slightly better than their counterparts. The S&P 500 index fell 5.1% in March, a smaller decline than the benchmark indices in Asia and Europe, as stocks linked to the energy sector rebounded. In contrast, the MSCI Global Stock Index fell more than 7%. Mark Richards, managing director of dynamic multi-asset at Fidelity Asset Management, said, "The geographical proximity of the conflict, as well as the sensitivity of the economy and stock markets to interest rates and energy (oil and gas) prices, is obviously a bigger issue for EU and Asian markets." The current trend of US assets contrasts sharply with this time last year. Trump's global tariff policy once triggered a months-long selloff of the dollar index, including a 4% plunge in April, leading investors to diversify their assets into Japan, Europe, and emerging markets. The index closed with an 8.1% decline by the end of 2025, marking the largest annual decline since 2017. Following the "Liberation Day" announced by Trump on April 2, 2025, when tariffs took effect, the S&P 500 index plummeted by more than 10% in the following two trading days. A week later, as Trump announced a 90-day suspension of tariffs on dozens of countries, the index surged by 9.5%, marking the largest single-day increase since 2008. Although the US benchmark stock index recorded a gain of about 16% by the end of 2025, achieving a third consecutive annual rise, its increase lagged behind the nearly 21% rebound of global stock benchmark indices. Many fund managers suggest that once the energy crisis eases, the relative underperformance of US assets will return. "Given the US's status as an energy exporting country, it is seen as a relative winner in these events, or at least not a big loser," said Vincent Mortier, Chief Investment Officer of Ostrum Asset Management in Paris, the largest asset management company in Europe with assets under management of 2.38 trillion. He said that the solution to the current energy crisis "will be found in the coming weeks or months," and actions to diversify US asset risks "will not disappear." "For fundamental reasons, the dollar is on a long-term depreciation path, and the US stock market remains very expensive." Jeffrey Blazek, Co-Chief Investment Officer of Loomis Sayles & Co., pointed out that "a peace agreement could trigger a selloff of the US dollar against most major currencies and lead to non-US stock markets outperforming US stocks." Meanwhile, the soaring oil prices are particularly painful for emerging markets, reversing the trend of this asset class. In recent months, emerging markets had been the primary beneficiaries of capital flight from the US. As a risk indicator, emerging markets have been hit hard due to their strong dependence on energy imports. Last month saw a 13% drop, marking the worst performance in six years for an index measuring stocks in developing countries. An index measuring emerging market currencies also lost nearly 3%. Jeff Grills, Head of US Cross-Asset and Emerging Market Debt at Allianz Investment, said the reversal of the trend of "shorting the US" last year has forced emerging market investors to deal with the complex situation interwoven with high oil prices and geopolitical risks. "My biggest concern is that this could evolve into a heavier burden," he warned, saying that if crude oil prices move towards $150 per barrel, it could trigger a widespread economic slowdown. Trump's recent comments have increased the possibility of a familiar scenario - traders have already begun to anticipate that he will reverse his position if the market reaction is too severe, as he did in response to the tariff threats last year. "If oil products can start passing through the Strait of Hormuz quickly and do not reach a level of prolonged scarcity, the market will fluctuate upwards in concern," said Ian Samson, Fund Manager at Fidelity International. "Otherwise, if the conflict continues in its current form for weeks or months, there will be almost no safe haven except for the US dollar."