(The opinions expressed here are those of the author, Helen Jewell, International CIO, Fundamental Equities, at BlackRock. This column is for educational purposes only and should not be construed as investment advice.)
By Helen Jewell
LONDON, March 26 (Reuters) - Geopolitical shocks often don’t move markets the way intuition says they should, as investors raise cash first and ask questions later. For investors who understand this phenomenon, that’s not a problem. It’s an opportunity.
In the four days after the first U.S.-Israeli strikes on Iran, gold dropped nearly 4%. So did European defence stocks. This seems counterintuitive. Gold has historically been a safe store of value in turbulent times, and conflict typically drives demand for military equipment.
The explanation lies in investor positioning – or, more specifically, crowded trades.
When a large, market-jolting event strikes – and we’ve seen many since the COVID-19 pandemic – many fund managers execute a “program trade” – a rapid, mechanical de-risking to raise cash.
Rather than selling selectively, they aim to raise a certain percentage of cash by trimming a fixed percentage across their other holdings. That means the positions that have risen the most get sold the most. Magnified across the entire market, this explains why assets that would logically benefit from a given shock can end up falling the fastest.
<h3>CROWDING OUT</h3>
Gold has been the clearest example of this in the past few weeks.
A record amount of money flowed into commodity exchange-traded products (ETPs) in 2025, according to BlackRock data. Of the $100 billion added, $83 billion went into gold products. A further $15.5 billion flowed into gold ETPs in January alone – the biggest monthly inflow since September.
Gold (XAU=) was also trading nearly 30% above its 200-day moving average just before the Middle East conflict began, according to Bank of America data, the most extreme of any major financial asset.
Gold was, in short, a very crowded trade. That’s why it sagged when conflict broke out, despite its reputation for safety.
It’s much the same for European defence companies.
The industry’s index gained more than three times as much as the European market over the past 12 months, and some companies have surged dramatically since the start of the Ukraine war. Germany’s Rheinmetall (RHMG.DE) , for example, is up around 1,700% since 2022. Flows into an iShares European defence ETF hit a record level in January.
When this sector – seemingly an obvious beneficiary from rising geopolitical conflict – weakened right after the war broke out, it was clear this was driven by crowded positioning, not fundamentals.
<h3>WHAT NEXT?</h3>
De-risking is the easy part in a crisis. The harder question is what to do next.
Investors must ask some key questions: Is the world essentially the same – in which case original positions may be restored – or does it look meaningfully different?
Let’s first consider those two wounded asset categories: European defence contractors and gold.
Given the ongoing geopolitical fragmentation, the case for European defence companies still looks pretty decent – if not better than it did at the end of February.
On the gold front, our analysis shows that mining companies are set to generate record cash flows while trading below their historical average valuations. Given that the recent gold price weakness was likely not driven by a fundamental shift in investor sentiment, this thesis still holds.
We can also look at another crowded trade that has sold off sharply since the start of the conflict: South Korean chip stocks.
They were big winners in the first two months of the year, rising more than 50%, as these stocks benefited from the wall of capital that large technology companies were deploying for artificial intelligence hardware.
Why did they pull back? Not because the outbreak of war changed much for the firms themselves. Instead, they were in a vulnerable region and – perhaps more importantly – the stock prices had run the furthest.
Korean equities were trading nearly 40% above their 200-day moving average in February, with momentum scores higher than any other part of the market. Companies like SK Hynix (000660.KS) had gained nearly 400% over the prior 12 months.
So a retreat was to be expected. But given that the outlook for AI hardware currently remains strong, the retracement over the past few weeks may have been excessive – especially for the largest and most cash-generative firms.
Of course, Asia’s reliance on Middle East energy – and the spike in Asian fuel prices – is a serious risk for the region. If it persists, it could potentially weigh on these companies’ outlooks.
Finally, in some cases, a crisis can truly change some fundamentals, at least in the short term, and this can also create mismatches between price and value.
That may be the case now with oil-related companies. Iran’s closure of the Strait of Hormuz – through which roughly a fifth of global oil previously transited – has sent Brent crude prices soaring to more than $100 a barrel. Yet oil producers’ share prices have not kept pace. That gap could be the opportunity.
Navigating markets like these often means making bold de-risking and re-risking decisions – and it demands that one be able to tell the difference between a true shift in fundamentals and a technical recalibration.
(The opinions expressed here are those of the author, Helen Jewell, International CIO, Fundamental Equities, at BlackRock. This column is for educational purposes only and should not be construed as investment advice.) Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. Follow ROI on LinkedIn and X. And listen to the Morning Bid daily podcast on Apple, Spotify, or the Reuters app. Subscribe to hear Reuters journalists discuss the biggest news in markets and finance seven days a week.
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De-risking in action
<img src="https://imageproxy.pbkrs.com/https://www.reuters.com/graphics/ROI-ROI/zjpqmwqokpx/chart.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" width="1420" height="994" original-src="https://imageproxy.pbkrs.com/https://www.reuters.com/graphics/ROI-ROI/zjpqmwqokpx/chart.png"/>
(Writing by Helen Jewell; Editing by Anna Szymanski)

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ROI-Why gold and defense stocks sold off as war broke out: Helen Jewell