Over the past week, global investment markets have been assessing the implications of the joint US–Israeli military strikes against Iran, which first took place on 28th February. The immediate market response followed a familiar pattern: a flight toward perceived safe havens and a repricing of sectors most directly exposed to geopolitical risk. However, as tensions have escalated and further developments have unfolded, the investor impact has become more nuanced, producing uneven results across sectors and investment themes.
As readers will be aware, the situation is fluid and constantly evolving. Our thoughts remain with our colleagues in the UAE as well as our clients, friends and family members who may have been impacted.
Unsurprisingly, the energy sector has been at the centre of market volatility. Iran’s blockade of the Strait of Hormuz, through which roughly 20% of global oil supply passes, has significantly disrupted market sentiment. Brent crude, the global benchmark for approximately two-thirds of internationally traded oil, surged from around $70 per barrel to more than $85 in the immediate aftermath of the strikes.
European gas markets also experienced sharp movements after attacks on Qatari energy facilities, with prices nearly doubling at one stage before moderating later in the week. Energy producers have been among the primary beneficiaries of these price movements. Major integrated oil companies such as Exxon Mobil, a Global Blue Chip holding, saw their share prices rise by roughly 4–5% during the week as investors sought exposure to firms positioned to benefit from higher commodity prices. Over the longer term, these developments have renewed concerns about global inflation, with some early estimates suggesting that the rise in energy prices alone could add close to 1% to global inflation, if sustained. This has led to investors scaling back expectations for interest rate cuts over the year.
Another sector that has witnessed strong performance is aerospace and defence. Heightened military activity, alongside governments wanting to ensure they are well-equipped, has reinforced a structural investment theme centred on national security. As a result, major defence contractors such as Lockheed Martin and RTX have been cited among the key beneficiaries. In parallel, defence-related technology firms, particularly those involved in data analytics and artificial intelligence, such as Palantir, have attracted investor interest.
In respect of technology, which has been one of the most powerful drivers of market performance over the past two years, the geopolitical shock triggered a sharp rotation away from some of the sector’s higher-valuation segments. Semiconductor and hardware companies experienced notable declines. On the other hand, larger, cash-rich firms with strong balance sheets, such as Microsoft, have shown greater resilience and, in some cases, have even acted as relative safe havens within the broader technology landscape.
Regionally, market performance has also been mixed. The US, so far, has proved relatively resilient, with the markets remaining broadly within recent trading ranges, despite modest weekly declines of around 1–2%. In contrast, economies more exposed to energy import risks have faced greater pressure. European and Japanese equity markets declined between 1.5%–2%, as higher energy costs threaten industrial margins and economic growth.
From an investor perspective, there is an important takeaway: whether it’s global conflict, pandemics, or geopolitical tension, in the long run, markets have demonstrated a remarkable ability to absorb such shocks. Over the shorter term, however, it is impossible to predict the winners or losers, with diversification proving key to ensuring portfolios remain resilient across a range of potential outcomes.
Across our discretionary portfolios, diversification has always been a core pillar of our investment approach. That said, over the past 18 months, we have also deliberately fine-tuned our thematic allocation, focusing on those areas where we have conviction, most notably within the technology and emerging markets. At the same time, we have included dedicated regional allocations, across UK, Europe and Japan, to better reflect an increasingly fragmented global landscape. We believe this provides greater control over the portfolio’s geographical allocation and helps us navigate regional divergences in growth, inflation dynamics, earnings trends and policy responses, which are becoming more pronounced.
We will continue to monitor developments closely and we will of course, if required, adjust positioning where appropriate, ensuring that portfolios consider both near-term risks and long-term investment opportunities.
