“World's Largest Asset Manager” CEO: Investors Are Underestimating Risks, Even If Iran War Ends Quickly

BlackRock President issued a warning that the market may be severely underpricing the economic impact of the Iran conflict.

According to Bloomberg, BlackRock President Rob Kapito said on Thursday that even if the Iran conflict ends in the short term, the impact on economic growth and inflation will persist, and investors' current optimistic expectations carry a significant risk of underestimation. He warned that oil prices could still soar to $150 per barrel, as damaged supply chains will take time to return to normal.

Apollo Global Management President Jim Zelter also issued a warning at the same event, stating that a prolonged conflict will significantly increase the risk of the US economy falling into recession and threaten the credit cycle. He pointed out that US consumers are showing clear signs of financial stress, and confidence continues to decline.

The aforementioned remarks have intensified market concerns about investor over-optimism. Nearly a month since the outbreak of the war, the US stock S&P 500 index has fallen by less than 5%, while traditional safe-haven assets such as gold and US Treasuries have also deviated significantly from historical patterns.

Market Pricing Disconnected from Historical Patterns

Kapito stated at the Asia Pacific Financial and Innovation Symposium in Melbourne that the market's current reaction to the risks of the Iran conflict differs significantly from historical experience.

He pointed out that in the past, during similar conflicts, investors typically bought short-term US Treasury bonds, bought gold, and shorted the stock market. However, this time, these traditional defensive trades have not performed as expected – gold has fallen by nearly 15%, US Treasury prices have declined due to inflation concerns triggered by rising oil prices, and the S&P 500 index has fallen by less than 5%.

Kapito said his biggest concern is that investors are not seriously examining the potential impact of this conflict and are instead assuming an optimistic outcome. "What does this conflict lasting a week, six months, or a year mean for the companies I hold?" he said.

Economic Impact Unlikely to Dissipate Quickly Even if War Ends

Kapito warned that even if the war were to end tomorrow, oil prices could still surge to $150 per barrel because it will take time for the impacted supply chains to return to full operational capacity.

He further estimated that the conflict could drag down economic growth by as much as two percentage points, while simultaneously pushing inflation up by a similar margin. This assessment implies that the market's current pricing of the war's impact may fall far short of reflecting the deeper implications of sustained supply chain disruptions on the global economy.

Bloomberg previously reported that JPMorgan strategists had also pointed out that investors were exhibiting excessive complacency regarding the Iran conflict.

Despite issuing these short-term risk warnings, Kapito expressed optimism about the long-term outlook. He cited the development of artificial intelligence and the rise of private markets as important long-term tailwinds for investors, believing these structural trends will provide sustained support for the market.

US Consumer Confidence Under Pressure, Recession Risk Rises

Apollo's Jim Zelter focused on the US consumer end. He stated that consumers, who have supported the US economy for years, are now showing clear signs of financial stress – consumer confidence has weakened consistently in the first two months of this year, and further oil price increases will further erode their real purchasing power.

"This is not a true interest rate shock, but a confidence shock in consumer spending in the world's largest economy," Zelter said. He warned that if the conflict continues, the risk of the US economy falling into recession will significantly increase, and the credit cycle will face greater pressure.