06 Mar 2026
Recent developments in the Middle East have dominated headlines. First and foremost, our thoughts are with those affected by the conflict.
In February, equity markets rotated as investors reassessed the AI narrative. Large-cap technology and software stocks were sold in favour of cyclicals and selected defensives, broadening market participation. The equal-weight S&P 500 outperformed its cap-weighted counterpart, while early signs emerged that markets were beginning to price in geopolitical risk of war in the Middle East.
This was most visible in energy markets. Initial crude oil price moves were relatively muted at the onset of military action, suggesting some risk premium was already embedded. As the conflict broadened regionally and key shipping routes were disrupted, energy prices responded more forcefully. As of the time of writing, the Brent spot price has climbed above US$100 per barrel, reflecting US$30-plus of war-related risk premium. The price could continue to rise non-linearly if disruption in the Strait of Hormuz persists.
The central variables are the degree to which production and energy infrastructure are impacted as well as the duration of shipping disruption. Key indicators to monitor for clues about duration include political statements clarifying objectives, traffic flows through the Strait of Hormuz, and the conflict’s intensity and spread. Longer-dated oil contracts are likely to provide the clearest early signal of changing expectations.
The conflict is generating second- and third-order effects, spanning macro concerns - such as inflation, monetary policy, and consumer confidence - as well as equity fundamentals, including supply chains, input costs and potential capital reallocation. Gulf-based entities, for example, may need to divest assets to raise liquidity, creating technical pressures in some markets.
Country dynamics also matter. The sharp sell-off in Korea’s KOSPI illustrates this. The market is acutely exposed to higher oil prices, saw profit-taking after strong performance, faced local retail margin calls, and remains concentrated in Samsung Electronics and SK Hynix. Not all implications are negative, however; dislocations can create selective opportunities.
Financial markets have a mixed record in assessing geopolitical risk in real time, as do policymakers. What investors can control is portfolio preparation. Clear analysis, recognition of uncertainty and disciplined risk management are paramount.
Investors should look beyond perceived “quality” or “defensive” names. Rigorous fundamental and valuation analysis helps separate material developments from noise and avoid knee-jerk reactions. Balance sheets should be scrutinised for exposures, liquidity levels, refinancing risk, and the capacity to absorb shocks.
Cross-asset linkages also warrant attention. Sustained inflation could pressure bonds, while inflation-resilient equities may offer relative protection. Credit spreads are a key barometer of financial conditions and can offer early warning signs for equity investors. There is no evidence of long-term structural impairment across equities at present. However, reinforcing portfolio resilience will better position investors in more uncertain times.
Niamh Brodie-Machura
CIO, Equities
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