Bahrain is the risk in the Middle East crisis, says Jupiter’s Geldard

 by Amanda Julius on Apr 13, 2011 at 07:00

Jupiter’s Miles Geldard is concerned that unrest in Bahrain could cause long-term disruption to the oil supply, pushing prices up over an extended period.
Geldard, who is head of multi-asset strategies for absolute returns at the group and manager of the Jupiter JGF Global Convertibles fund, said: ‘When the jasmine revolution in Tunisia [and Egypt] kicked off, my heart sunk.’
He is concerned that the status quo of a stable agreement on oil provision between Saudi Arabia and the US might break down under the strain of Middle East unrest.
The legitimacy of the Saudi monarchy is based on Wahhabism, an extreme form of Sunni Islam, which gives the Saudi regime a vested interest in preserving the Sunni Bahraini establishment in the face of any revolutionary threat.
As a result, the Saudi royal family has actively entered the conflict in the country, transforming an attempted middle class uprising into a faith-driven sectarian issue, he said.
According to Geldard, who previously lived in Bahrain for three years, the ramifications of the unrest in Bahrain could be severe for the oil market. ‘Everyone is focusing on Libya, but what’s happening in Bahrain is very ominous indeed,’ he said.
Managing a conservative fund in the context of instability in the oil market could prove very challenging, as sovereign bonds start to struggle under the strain of political and economic pressure.
The price of oil is not in itself a worry, Geldard explains, as the global economy was previously able to absorb highs of $147 a barrel in 2008, but the lack of demand driving that spike is cause for concern. ‘Now we have a supply issue,’ he said. ‘So in our portfolio we are focused on relative value trades in the bond market.’
While Geldard believes equities are currently attractive on one level, he is wary of fluctuating macroeconomic risks and as a result is focused primarily on the currency markets. This enables him to profit from the transportation of an excess of savings in emerging markets to a savings deficit in developed markets.