Asset allocation perspective: Mapping geopolitical risks across asset classes

4 March 2026

Middle East tensions have intensified amid ongoing military strikes and Iranian retaliation, but we believe the escalation is likely to be time bound rather than the start of a prolonged regional war. Iran retains the capacity to respond through missiles, drones and maritime harassment, yet there is little evidence of a loss of command and control or imminent regime collapse. At the same time, US objectives appear constrained: degrade Iranian military capability while avoiding a drawn out conflict, limiting US casualties and preserving a clear path to de escalation. In an election year for the US, domestic political considerations reinforce this bias towards containment.

Commodities

A key risk is energy, particularly any disruption around the Strait of Hormuz, through which roughly a quarter of global seaborne oil and a fifth of global LNG flows. While Iranian harassment or intimidation have raised shipping risks, a sustained, full and prolonged closure of the strait is viewed as unlikely. Such an action would be economically self defeating for Iran and would almost certainly provoke overwhelming international retaliation. A more plausible outcome is disruption — driven more by higher insurance and freight costs and temporary delays — rather than a lasting shutdown of supply. Also, to date, we have not seen serious damage to upstream energy infrastructure.

Oil markets will probably continue to price in a meaningful geopolitical risk premium. This is more likely to reflect uncertainty around the duration of disruption rather than provide evidence of a structural supply shock. Our team’s base case is, as we are currently experiencing, an initial price spike into the high US$70s to the high US$80s, reflecting a geopolitical risk premium of around US$15 – US$20 relative to fundamental fair value, followed by a retracement as escalation proves limited and attention returns to fundamentals. Fundamental crude balances on a 12 month horizon depend on how prolonged the war and its impact is expected to be. Importantly, there has been no sustained physical loss of global supply to date, and spare capacity within OPEC remains a key stabilising force should prices rise materially. Sunday’s OPEC meeting yielded modest additional supply concessions, with a commitment to do more if necessary. The main obstacle to flows is transit through the Strait of Hormuz.

We do acknowledge upside risks. More serious escalation — such as direct hits on major Gulf energy infrastructure or significant US military losses — would likely push oil prices higher for longer. If GCC countries or Saudi Arabia get drawn in, this could spill over into a regional conflict. If the expectation is that flow through the strait is impeded for many weeks, we would reconsider our base case. If de escalation does not materialise and risks persist with policy response proving ineffective, we cannot dismiss the idea that we are operating in a different regime for markets. In this scenario, heightened supply uncertainty raises the effective price floor, with oil prices likely rising to US$90, keeping risk premia across asset classes elevated. However, for now, we view these outcomes as lower probability risks.

Equities and credit

Historically, periods of instability in the Middle East have tended to present “buy-the-dip” opportunities, as they have rarely led to lasting impacts on global growth, inflation or monetary policy unless accompanied by a structural oil supply shock. For equities, we would likewise expect a temporary increase in volatility and risk aversion. Within the scenarios we consider most likely today, a large sell-off could see buying opportunities emerge in equities and credit. While recent rotations within equities have favoured cyclical, small-cap and some defensive segments while moving away from growth, in the short term we would expect a further rotation into defensives. In the short term, concerns about higher energy prices disproportionately impacting Europe and Asia could interrupt rotation into non-US equity markets, as we discuss below.

Downside risks to our base case stem from scenarios involving a more prolonged conflict, as discussed above, which would have the potential to impact the cyclical economic expansion. This comes against a backdrop where our global cycle indicators have continued to improve, pointing to a return to above-trend real and nominal GDP growth. We currently have a modest equity overweight view and no position in credit spreads. We also expect low double-digit global earnings growth over the coming 12 months, though this outlook could see downgrades should the conflict extend and intensify in the coming weeks and months.

Regional implications

Europe’s exposure to a rise in gas prices does give cause for concern given it is dependent on imports for roughly 85% of its gas needs (although the US accounts for the bulk of this). The spike in gas prices has the potential to increase stagflationary risk for Europe in particular, through tightening the supply side.

In Asia, Japan and Korea may be more fundamentally exposed as large energy importers, and supplies of gas are a key risk to Asian economies. Recent strong performance may present profit-taking opportunities. Offsets for Korea and Taiwan may come from their position in the AI supply chain, where structural undersupply of memory and chips should provide more cushion than in prior oil shocks – fundamentals are likely to reassert themselves.

China imports roughly 15% of its oil from Iran but has built a significant strategic reserve of petroleum in preparation for exactly this type of eventuality and could also increase imports from Russia. Nonetheless, a longer conflict could damage China's export engine by raising freight and energy costs and reducing global demand for its products. A-shares appear less sensitive to global geopolitical uncertainty than offshore or Hong Kong markets and could be less volatile in this environment.

Government bonds

We have an overweight view on government bonds, where we think markets are likely to remain broadly stable, caught in the crosswinds between a flight-to-safety bid and pressures on central bank reaction functions from higher oil prices and freight rates. In the US, every US$10 increase in energy prices adds roughly 0.3% to CPI, although higher inflation weighs on discretionary consumer spending. From an investment perspective, a rise in uncertainty that begins to impinge on investment decisions would be an additional risk, should the conflict deepen.

Impact on the US dollar

The US dollar is likely to remain supported. US growth should prove less sensitive to higher energy prices than energy-importing regions, notably the eurozone. While its defensive qualities have been challenged in recent months, the US dollar is still likely to benefit from a spike in risk aversion.

Views on the Middle East conflict from an equity perspective

4 March 2026

While not to minimize the significance of current events from a geopolitical standpoint or their impact on the lives of those directly affected, I think the effects on the equity market will be short-lived and largely a non-event. There are many other factors (AI capex, inflation, Fed policy decisions, midterm elections, etc.) that I’d expect to be more impactful for markets in coming months.

It’s worth bearing in mind that stock prices are a function of expected growth of profits and free cash flow and the related discount rate (risk premium). The events in the Middle East will have little or no impact on the former, except for businesses, industries, or regions directly affected by higher resource prices (positively or negatively) or business disruption. We’re already beginning to see this dynamic, with higher natural gas and oil prices most acutely affecting resource-dependent economies in Europe and Asia. For these regions, especially those that are net importers of oil or gas, the shock risks re-accelerating inflation that had already proven sticky as global nominal growth picks up. This may bring policymakers back to the growth/inflation trade-off that we’ve experienced in recent years, likely also prompting fiscal offsets that may ultimately embed underlying inflation pressures. This all reinforces the broader pattern we’re seeing: a less synchronized global cycle, characterized by wider dispersion and lower correlations across markets.

While one could reasonably expect that a military engagement of this magnitude must impact the global risk premium, I think events of recent years have conditioned investors to separate short-term risks from more sustained ones. The Russia-Ukraine war is still raging after four years (well beyond many worst-case fears back in 2022), yet the broad macro effects have long been in the rear-view mirror.

I’d also note that this latest conflict hardly comes as a significant surprise, given attacks against Iran in 2025, recent uprisings within the country, US military movements into the region, and failed negotiations. All of this — including the fact that betting markets had assigned relatively high odds to some form of US action in Iran by the end of March — helps to explain the initially muted reaction in markets. Despite solid earnings growth in the second half of last year, the S&P 500 has been trading modestly lower since making all-time highs in late October 2025, reflecting growing concerns not only around geopolitics but also around factors such as AI capex, private credit, and broader AI disruption. We’ve also seen significant rotation within markets reflecting these macro shifts, with energy among the stronger performing sectors year to date, partly reflecting concerns around potential supply disruption in the Middle East.

Finally, looking at the bigger picture, I agree with the assessment of our geopolitical strategist, Thomas Mucha, that this is a continuation of the changing global order that has accelerated in recent years. As we have put it in our recent research on the topic of US exceptionalism, we see “two truths” today: 1) Many US public companies remain globally exceptional, but 2) the US is becoming a less predictable and trustworthy global partner. This has implications for investors as it relates to concentration risks in US assets (and USD) and the increased value in hedging and diversifying these risks. But I think current events are less a catalyst and more a continuation of this trend.

Views on the Middle East conflict from a fixed income perspective

4 March 2026

Recent hostilities in the Middle East have primarily affected fixed income markets through energy prices, inflation expectations, and broader risk sentiment rather than through an immediate deterioration in corporate fundamentals.

At the time of writing, energy markets have reacted sharply, with oil and gas prices moving higher as geopolitical risk premiums have expanded. Importantly, markets had already priced in a meaningful geopolitical premium prior to the escalation, suggesting the price action reflects an amplification of existing concerns rather than a fundamentally new shock. Our base case remains that any supply disruption is short-lived, and that energy risk premiums should recede as conditions stabilize.

Macro/rates

The economic impact of the current conflict in the Middle East hinges primarily on energy markets and uncertainty effects. The most acute risk is potential damage to transport infrastructure or disruption of the Strait of Hormuz, through which oil is transported. These events would materially weigh on global growth and risk assets through a sharp rise in oil prices, which acts as a tax on consumers and disproportionately hurts discretionary spending. At the same time, elevated uncertainty could delay investment if the conflict deepens or persists.

Rates markets initially rallied on risk aversion but quickly reversed, with US Treasury yields now higher across the curve. Short-dated inflation measures rose more than would typically be implied by the energy move alone, suggesting markets are assigning higher odds to a near-term inflation impulse. The US Federal Reserve (Fed) is likely to closely monitor inflation expectations and OPEC’s response to determine how persistent the energy shock may be and whether policy needs to adjust accordingly. Futures markets are currently pricing two interest-rate cuts in 2026, compared to one cut as of the Fed’s most recent projections.

Credit markets

Credit spreads have widened modestly across both investment-grade and high-yield. However, the primary drivers of spreads have recently been technical rather than geopolitical. Heavy supply, sector-specific repricing, and markdowns in private credit portfolios have played a larger role in spread movements than conflict-related fundamentals. While geopolitics may add volatility at the margin, any de-escalation is not likely to serve as a catalyst for sustained spread tightening, in our view.

Emerging markets

In emerging markets (EMs), the impact of higher energy prices is more nuanced. Persistently higher oil prices would weigh on global growth, lift inflation, and constrain central banks’ ability to ease policy, pressuring energy importing EMs across Asia and parts of Europe. Conversely, several commodity exporting EMs in Latin America and Africa could benefit from higher prices or a shift in production away from the Middle East. Overall, while near term impacts may remain contained if disruptions are limited, a prolonged or wider conflict would increase downside risks for EM asset prices and macro stability.

Multi-asset perspective: Middle East conflict is geopolitically significant but likely transitory for markets

3 March 2026

How is the market digesting the conflict?

The conflict introduces a wide range of potential outcomes with different market implications. At the time of writing, oil prices have risen, equities have declined (with European markets under greater pressure due to higher natural gas prices), US Treasury yields have increased, and the US dollar and gold have strengthened. These market moves largely reflect a rise in risk premia ― not a fundamental shift. Absent a sustained disruption to oil supply, I expect them to fade.

Historically, the market impact of US-involved geopolitical conflicts has tended to be short-lived, with risk premia reversing over time. Consistent with this, the current US administration has thus far demonstrated an apparent preference for short, forceful responses — primarily through air and naval power — to achieve rapid outcomes. For this reason, and in light of the limited political appetite for a prolonged US military engagement in the Middle East, this conflict is likely to be relatively short-lived.

What else could impact this view?

Downside risks to this view include:

• A prolonged conflict keeping oil prices in the US$85 – US$100 per barrel range could represent a meaningful supply shock, raising recession risk and increasing political pressure ahead of US midterm elections.
• Escalation risks include significant US casualties; full closure of the Strait of Hormuz, through which oil is transported; or civil unrest in Iran leading to deeper US involvement.

Upside considerations include:

• Oil markets remain well supplied and Saudi Arabia has agreed to increase production in support of lower prices. At the same time, a geopolitical risk premium was already embedded in oil prices prior to US action.
• Regional responses within the Middle East suggest increased alignment with the US, rather than pressure to de-escalate.

Investment implications

Equities

• The rotation toward international and value-oriented equities has continued.
• European equities face greater uncertainty given elevated natural gas prices.
• Support remains for US AI infrastructure beneficiaries and emerging market equities.
• It may also argue for a shift from oil exploration and production toward higher-quality integrated energy companies.
• Gold equities offer catch-up potential relative to bullion.

Fixed income

• Bear flattening reflects concerns over sticky inflation and reduced expectations for rate cuts.
• Long duration may become attractive on further yield increases, particularly if AI-driven productivity tempers inflation.
• A more defensive posture in investment-grade credit may be warranted given tight spreads and expected issuance.

Commodities

• Consider maintaining long exposure to gold, with greater upside potential in gold equities.

Overall, investors across asset classes may do well to remain focused on underlying fundamentals beyond the conflict, including AI-driven growth, rotation into real assets and international equities, and opportunities in private credit.

US-Iran conflict: Key signposts to monitor

1 March 2026

The confirmed death of Supreme Leader Ayatollah Ali Khamenei and other key regime leaders injects maximum uncertainty into events from here, ranging from the impact on Iranian military capabilities and cohesion to regime stability and succession implications.

Risks remain highly elevated throughout the region and, from a market perspective, energy infrastructure and shipping lanes are key areas to watch.

Iran's president and IRGC leaders have vowed retaliation, while President Trump has said US and Israeli attacks will continue "throughout the week or, as long as necessary to achieve our objectives of peace throughout the Middle East and, indeed, throughout the world."

All of this implies further military action over the coming days and potentially beyond that, as well as elevated macro and market risks.

Key signposts to monitor

• First and most important: Iran's military response and target list — Iran resumed retaliatory missile and drone attacks across the region on Sunday, indicating continued military capabilities amid significant leadership upheaval. The wider the target list, the higher the probability of sustained and widened regional conflict (such as attacks on civilian infrastructure or economic targets including cyberattacks)
• Second: energy infrastructure risk — This could include confirmed attacks on or credible risks to Iranian oil and gas facilities and Gulf energy infrastructure.
• Third: shipping and the Strait of Hormuz — Among the risks here are harassment of commercial shipping, mining risk, insurance cost spikes, rerouting or sustained slowdowns, etc.

Other signposts I'm watching

• The duration and tempo of military operations — Do US/Israeli strikes slow after initial battle-damage assessments? Does the campaign shift from "days" to weeks, indicating incomplete degradation of Iranian capabilities, etc.?
• Proxy activation and enthusiasm — What response, if any, will there be from Houthis, Shiite militias in Iraq and Syria, Hezbollah in Lebanon, etc.?
• US force posture and exposure — What force protection measures will be taken for the roughly 40,000 US military personnel in theater? I’ll be watching for evidence of dispersal vs. vulnerability; direct Iranian successes against US military assets; etc.
• GCC "pulled-in" indicator — This includes the level of missile interceptions or other impacts on Gulf states hosting US military assets; length/spread of airspace closures and/or sustained defensive operations, etc.
• Diplomatic signals vs. rhetoric — Watch for actions, not statements, to determine if/when this resumes.
• Iranian domestic political responses — Will there be mass protests against the regime following Trump's regime change statements? Look for visible signs of support for the regime, the Islamic Revolutionary Guard Corps (IRGC) capabilities to suppress opposition, etc.
• US domestic political reaction — I’m keeping an eye on polling indicators, responses from Congress, etc.
• Great-power rival and US allied reactions — Will China and Russia do more than offer rhetorical support? How will US allies respond and what does this say about ongoing deleveraging from US security relationships, etc.?
• The risk of mission creep and spread — Does significant US military action in the Middle East diminish capacity and/or reduce policy attention on Venezuela, Cuba, the upcoming US-China summit in Beijing, etc.?

Bottom line

Over the short-term, markets should focus less on headlines and tweets and more on observable signposts — especially Iranian targeting choices and regime-military cohesion, energy and shipping risk, and whether this conflict is seeking a ceiling or drifting into a prolonged campaign. The next 24 – 72 hours will help determine the likely probabilities from here.

Longer term, the broader context matters: This ongoing and seismic development is part of a broader shift across the geopolitical environment and will likely accelerate global fragmentation and conflict, promote less policy cohesion, and further reinforce a global policy focus on national security issues, writ large.

US-Iran conflict escalates: What investors should watch now

28 February 2026

Today the United States and Israel launched direct military strikes on Iranian territory, marking a decisive escalation in a long‑running confrontation that has now moved from coercive diplomacy and shadow conflict into overt interstate warfare. President Trump has confirmed that US forces are conducting “major combat operations” alongside Israel, framing the campaign around degrading Iran’s missile capabilities, preventing nuclear reconstitution, and applying maximum pressure on the Iranian regime.

This shift matters for markets not because war itself is new in the Middle East, but because the thresholds crossed meaningfully raise escalation risk and expand the set of plausible economic outcomes over the coming days and weeks.

What has happened

Joint US–Israeli strikes have hit multiple Iranian cities, including Tehran and key military and industrial hubs, targeting missile infrastructure and regime‑linked facilities. The Pentagon has named the operation “Operation Epic Fury,” underscoring that this is not a one‑off signaling strike but an open‑ended military campaign with the maximalist goal of regime change.

Iran has already begun retaliating, launching ballistic missiles toward Israel and US regional assets. Missile and air‑defense activity have been reported across Israel and the Gulf, while several countries hosting US bases have closed airspace and diverted commercial flights. Damage and casualty assessments remain incomplete, and information is still fragmentary — a typical feature of the early phase of fast‑moving conflicts.

Why this is different

From an investor perspective, the key distinction is that the United States has now crossed from deterrence to direct warfighting against Iran. Two implications follow:

• First, Iran’s incentives have changed. Public US rhetoric has moved beyond narrow military objectives toward maximum regime pressure, which reduces Tehran’s incentive for restraint and raises the probability of sustained retaliation rather than symbolic response.
• Second, the conflict has widened geographically. What began as strikes inside Iran has already extended to Israel and the Gulf, increasing the risk that third‑party states and critical infrastructure are pulled into the escalation cycle, even unintentionally.

The key variables to watch

The market impact from here depends less on US intent — which is now clear — and more on Iranian choices.

• Scope of retaliation Iran can calibrate its response along a wide spectrum, from limited missile fire toward Israel to sustained attacks on US bases or regional partners. The broader the target set, the higher the escalation risk.
• Energy infrastructure and shipping Full closure of the Strait of Hormuz remains a low‑probability outcome, but partial disruption, harassment of shipping, or attacks on energy facilities would be enough to generate significant oil price volatility and risk premia.
• Duration of operations Battle damage assessments will determine whether follow‑on US strikes are required. If initial attacks fail to significantly degrade Iran’s missile or nuclear‑adjacent capabilities, the campaign could extend in time and scope.

Market and macro implications

In the near term, markets should expect a risk‑off bias, driven primarily by energy and geopolitical uncertainty rather than immediate economic damage.

• Energy Oil prices face asymmetric upside risk. Even without physical supply losses, higher insurance costs, shipping disruptions, and geopolitical risk premia can move prices meaningfully.
• Inflation and policy An energy shock at this stage would complicate the global disinflation narrative and reinforce central bank caution, even if growth softens elsewhere.
• Risk assets Equity and credit volatility are likely to remain elevated until there is clarity on whether Iran is signaling a ceiling or preparing for wider escalation.

Structurally, the episode reinforces my longer‑term investment themes around energy security, defense, dual-use technologies (e.g., artificial intelligence), cyber capabilities, and geopolitical fragmentation.

Bottom line

The US decision to strike Iran directly has shifted markets into a regime where tail risks temporarily matter more than base cases. A full regional war remains unlikely, in my view, but the distribution of outcomes has widened materially. Investors should focus less on headlines and more on escalation signposts: Iranian targeting choices, energy infrastructure security, and signals of whether either side is seeking a ceiling or preparing for a prolonged confrontation.

As events remain fluid, clarity will come not from rhetoric, but from actions over the next several days. We will continue to monitor geopolitical developments and the risks and opportunities they create for investors.