Growth could be hit by as much as two percentage points, while inflation may rise by a similar margin even if the war ends shortly, warned Kapito at the Asia Pacific Financial and Innovation Symposium in Melbourne on Thursday.
Oil may still spike to $150 a barrel even “if we announce tomorrow the war is over,” as it would take time for disrupted supply chains to return to full capacity.
“What if this disruption is a week, six months, a year – what is it going to mean for the companies that I own?” Kapito said. “My biggest concern is that people aren’t looking at this-they’re just making the assumption” for an optimistic outcome.
The S&P 500 index of US stocks has fallen less than 5% since the war began almost a month ago just as some defensive trades have misfired. Gold has fallen almost 15%, while Treasuries-which typically offer portfolio ballast – have declined as rising oil prices trigger inflation concerns.
In the past, “when there was a conflict like this, you bought short-term Treasuries, you bought gold and you shorted the equity market,” Kapito said, highlighting the uneven market response to the war. At the same event in Melbourne, Apollo Global Management’s president Jim Zelter also cautioned about a heightened risks of a US recession and to the credit cycle from a prolonged conflict. The warnings highlight growing concern that markets are too complacent about the economic fallout from the conflict, particularly the potential for prolonged disruptions to energy and shipping that may ripple across global supply chains.
Zelter said US consumers that have been a bulwark of the economy for the last few years are already showing signs of distress. Consumer confidence in the first two months of the year had been waning, and higher oil prices will cause further pain to their pockets, he added.
“It’s not really a rates shock, it’s a confidence shock on spending in the largest economy in the world,” Zelter said.
Despite the prospect of slower growth and higher inflation linked to the war, Kapito said he remains upbeat over the long term, citing themes such as AI and the rise of private markets as key tailwinds for investors.
