The conflict between Israel and Palestine erupted on October 7th, raising concerns about geopolitical risks. At Cadira Capital Management, we do not take a political stance on this issue. However, as geopolitical developments can have a significant impact on the stock market, we are closely monitoring the situation.
As Japan is geographically distant from the Middle East, the direct impact of the Israeli-Palestinian conflict on Japan is limited. However, there are indirect concerns in two areas.
One is the evolution of oil prices. Conflict in the Middle East can lead to oil supply shortages, and in response to the military action by Hamas, the oil market experienced a sharp rebound. Prices have stabilized since mid-October, but the possibility of further increases cannot be ruled out depending on the evolving situation. At Cadira Capital Management, we do not invest in companies involved in the extraction of fossil fuels, so our strategy does not benefit from rising oil prices and the corresponding rise in the share prices of related companies. From a relative performance perspective, stability in oil prices is desirable.
Another concern on the geopolitical front is the risk of conflict spreading. Since Russia's invasion of Ukraine, there has been growing concern in Japan about the possibility of a new conflict between China and Taiwan. Changes in the balance of power and the redeployment of military forces as a result of conflict can lead to a domino effect of expanding geopolitical risks. As you might expect, we at Cadira Capital Management do not invest in companies that manufacture weapons, so our strategy does not benefit from increased arms production. While our strategy may not be suitable for investors hoping for the situation to worsen, it should not suffer a setback if the situation is resolved. Our strategy is consistent with a peace-seeking perspective.
In this situation, our investment approach focuses on identifying companies that are competitive or that are rapidly improving their management to generate returns independent of external environmental changes. In terms of individual company research, we carefully consider whether a company's supply chain is linked to conflict-prone regions.
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