(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.

CROWDING OUT

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 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, 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.

WHAT NEXT?

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

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.

​

(Writing by Helen Jewell; Editing by Anna Szymanski)