Is the Iran-U.S. war a "bottom-fishing opportunity"? Allianz's Chief: Demand shocks haven't started yet, stay away from stocks!

Ask AI · How the U.S.-Iran war could trigger a potential demand shock?

China Finance Network (4月1) (Edited by Huang Junzhi) After research firm Ned Davis Research and Deutsche Bank successively warned that the S&P 500 index “hasn’t fallen enough yet,” another Wall Street heavyweight has issued a warning to dip-buyers.

Allianz Chief Economic Advisor and former Chief Investment Officer at PIMCO, Mohamed El-Erian, said in a recent interview that since the U.S.-Iran war has entered its second month, he is currently staying away from the stock market—especially broad stock indexes.

He further pointed out that the rise in oil prices has triggered a series of economic consequences, and the market now must deal with the risk that demand shocks may start spreading throughout the economy.

Speaking about the potential demand shock, El-Erian said: “This is another turning point for the global economy. My risk tolerance has shifted from being reduced to completely avoiding risk, and now, although some stocks look attractive, I’m not entering the market, or buying the index—at least for now.”

It can be said that the past month has been one where fighting is raging outside, and U.S. stocks have been sliding relentlessly. By last Friday, both the Nasdaq and the Dow entered technical correction territory again. It wasn’t until this Tuesday, after Trump and Iran exchanged “de-escalation signals,” that the three major U.S. stock indexes surged sharply together.

But according to El-Erian, even taking into account the selloff that came before, investors may still be underestimating the economic risks that the U.S.-Iran war could bring.

“For the stock market, we still have this view that what we’re seeing is temporary—even if it may have some impact in the short term, we should ignore it.” He added.

The Iran war has raised a series of concerns in economic and financial markets, starting with the recent surge in oil prices. El-Erian further explained that people are worried that higher crude oil prices may worsen inflation, increase the burden on consumers, and ultimately lead them to reduce consumption of oil products.

He emphasized that unless supply increases, suppressing demand is a necessary way to lower oil prices. But this could potentially further slow economic growth at a time when the U.S. economy is already weak, leading more Wall Street forecasters to warn that a recession may occur.

El-Erian said that contraction in demand in other areas of the global economy is already showing. He pointed out that among Asian countries most affected by the closure of the Strait of Hormuz, they are currently facing a situation of critical shortages in key commodity supply. In the United States, a demand shock may show up as Americans cutting back on spending, especially among low-income households.

He also noted that this could have ripple effects across the broader financial system.

“First an energy shock, then an interest-rate shock, followed by a more broad-based inflation shock, and finally a demand shock. If this keeps going—hopefully it won’t—we will face financial instability. That’s the whole process. Hopefully we won’t get to that point,” he said, discussing the war’s consequences.

In recent weeks, El-Erian has repeatedly spoken publicly about the cumulative economic losses caused since the outbreak of the Iran war. In mid-March, in an interview, he said he believes the probability of a U.S. recession has risen to 35%, and that ever-rising inflation also increases the risk of a “financial crisis.”

(China Finance Network · Huang Junzhi)