Investing.com – BCA Research advises investors to take a tactical long position on the stock market, highlighting the lingering geopolitical risks that make the dollar a solid hedge.
In a recent report, the investment research firm predicts a hawkish shift in U.S. trade and foreign policy regardless of the election outcome, noting that “the global political system is destabilizing.”
According to BCA chief geopolitical strategist Matt Gertken, US foreign policy will tighten with the reaffirmation of a “credible threat to rivals.” This expected change, combined with the escalation of global tension, strengthens the attractiveness of the dollar as a defensive asset.
The report points to the Middle East as a key flashpoint, in particular the ongoing hostilities between Israel and Iran. Despite recent market reactions suggesting stability, BCA warns against a false sense of security.
“Direct hostilities between Israel and Iran constitute an escalation, not a de-escalation,” Gertken says, emphasizing that Israel’s recent actions may signal a deeper conflict.
“Prior to this year, the two were not involved in direct war, and Israel did not seek regime change in Iran,” he added.
With Iran likely to pursue its nuclear capabilities in the face of increased uncertainty, the BCA suggests that tensions in the region will continue to rise, posing risks to global oil supplies and potentially triggering a fresh oil shock.
The company estimates that the risk of major disruption in the event of an escalation of hostilities is 40%, which could potentially remove millions of barrels from the global market, thus increasing volatility and enhancing the dollar’s safe-haven status.
Beyond the Middle East, the BCA also signals growing geopolitical risks in Asia and Europe. In Asia, North Korea’s alliance with Russia and possible conflict with South Korea are creating additional instability, while in Europe there is a risk of a prolonged conflict between the US and Russia over Ukraine.
Gertken notes that European populism could see a resurgence if Trump wins, potentially undermining unity within the EU and putting even more pressure on the European Union. If Trump were to introduce trade tariffs on European allies, it could usher in a sophisticated trade environment that supports dollar strength as political risks escalate in Europe.
Given these dynamics, the BCA’s stance towards the dollar is one of defensive strategy in the face of market complacency towards geopolitical risk.
“Global stability continues to deteriorate. However, markets do not take volatility seriously, judging by our market-based geopolitical risk indicators,” the report said.
Therefore, BCA’s tactical recommendation is to “go long the dollar” to limit exposure to these global risks.
