Risk aversion is back — and it’s intensifying
The selloff in US equity markets and the broad-based pressure across Asian trading sessions signals that risk aversion is not fading — it is deepening. Every brief recovery attempt in global markets has been swiftly reversed by fresh reports and escalating developments, leaving investors caught in a cycle of false starts and renewed selling.
“It is very difficult to see beyond the length of your arm in this environment,” Kotecha told ET Now, capturing the sentiment that has paralyzed institutional decision-making across trading floors. Positioning, he noted, has become almost entirely tactical, with long-term allocation strategies effectively shelved until clearer signals emerge on the duration and breadth of the conflict.
The dollar finds its feet again
In a significant reversal of the prevailing narrative just weeks ago — when a broad “sell or hedge America” consensus dominated — the US dollar has reasserted itself as the go-to safe haven. While the greenback’s rally has been more modest than historical geopolitical shocks might suggest, the directional shift is meaningful.
Investors are rotating back into dollar-denominated assets, reducing exposure to emerging market currencies and riskier asset classes. Until there is tangible de-escalation or a credible ceasefire, this defensive posture is unlikely to change.
Asian currencies: The biggest casualties
Asia finds itself at a uniquely vulnerable intersection of risks. As a net oil-importing region, the continent bears the heaviest economic burden from surging energy prices — and that pain is being felt acutely in foreign exchange markets.
Kotecha named the Indian rupee as one of the biggest casualties since the conflict began, alongside the Korean Won, Philippine Peso, and Thai Baht. The common thread is straightforward: these economies import the majority of their energy needs, meaning every dollar rise in crude directly widens their current account deficits and drains foreign exchange reserves.”Asian currencies are expected to continue to be on the back foot as long as this conflict goes on,” Kotecha warned, adding that the damage is compounding because it isn’t just Brent crude — oil pricing specific to the Gulf, including Qatar and Oman grades that Asia predominantly purchases, is also under severe pressure.
Beyond oil: The commodities shock nobody is talking about
While headlines focus on crude, Kotecha flagged a broader commodities disruption that markets may be underestimating. Fertilisers, helium, and a range of raw materials that transit through the Strait of Hormuz are all exposed to supply disruption risk. The implications for food security, industrial production, and inflation across emerging markets could be far-reaching — and are not yet fully priced in.
This opens the door to the most feared macroeconomic scenario of all: stagflation. Higher oil and energy prices don’t just fuel inflation — they simultaneously crush consumer demand and slow economic growth, creating the toxic combination that central banks are least equipped to combat.
What should investors do right now?
Kotecha’s advice is clear: remain tactically defensive. Safe haven assets — the dollar, gold, and select developed market bonds — are where capital is sheltering. Carry trades, which had been a popular strategy across Asian and Latin American currencies, are being unwound as volatility makes the risk-reward untenable.
The Brazilian Real offers a nuanced case — it benefits from being a net oil exporter but suffers as a high-carry currency, leaving it caught between opposing forces. India has no such buffer.
For now, patience and capital preservation trump conviction and yield-chasing. The questions are simply too unanswered for anything else.