Executive Summary 

  • Markets have become increasingly volatileas geopolitical risk re-emerges as a key driver.
    • The Iran conflict has triggered a major global energy shock, pushing oil prices sharply higher.
    • Central banks remain cautious, balancing falling inflation against rising external risks.
    • Global equities are mixed, with further rotation away from the U.S. toward better-value regions.
    • Gold and real assets have strengthened further as investors seek protection from uncertainty. 

 

Iran War: A Global Energy Shock 

The conflict involving Iran escalated significantly through March, with the closure of the Strait of Hormuz becoming the defining macro event of the month. This narrow shipping route typically carries around 20% of global oil supply, making it one of the most critical choke points in the global economy.  

Following strikes by the US and Israel, Iran responded by effectively halting shipping through the strait, with tanker traffic falling dramatically and global energy markets thrown into disarray.  

Oil prices surged well above $100 per barrel at points during the month, representing one of the largest energy supply shocks in decades. 
The International Energy Agency described the situation as the largest disruption to global energy supply in history, with millions of barrels per day removed from the market.  

The consequences extend far beyond energy markets: 

  • Inflation risk: Higher oil and gas prices are expected to feed back into global inflation, potentially delaying rate cuts.  
  • Growth impact: The IMF has warned that the conflict is already weakening global growth expectations.  
  • Supply chains: Disruptions to fuel, fertiliser and shipping routes are beginning to impact food production and global trade.  

Markets initially reacted sharply, with global equities falling as oil spiked. However, as seen repeatedly in recent years, markets recovered much of their losses quickly — highlighting both resilience and a degree of complacency among investors. 

For portfolios, the key takeaway is that geopolitical shocks tend to create short-term volatility but long-term opportunity, particularly for diversified investors with exposure to energy, commodities and defensive assets. 

 

Global Equities Context 

Global equity markets were far more volatile in March compared to earlier in the year. The initial sell-off following escalation in the Middle East was followed by a partial recovery, leaving most major indices broadly flat over the month. 

In the U.S., markets continue to struggle for direction. Weakness in large technology companies has become more pronounced, with investors increasingly questioning valuations and the sustainability of earnings growth. 

Outside the U.S., the rotation into more attractively valued regions continued. UK and European equities remained relatively resilient, supported by lower valuations and global earnings exposure. Japan and India again stood out as structural growth markets attracting consistent capital inflows. 

Overall, markets remain driven more by expectations of policy support than by underlying economic strength — leaving them vulnerable to both inflation surprises and geopolitical developments. 

 

Central Banks: A More Complicated Path 

Central banks now face a more complex environment. 

In the United States, the Federal Reserve continues to signal that inflation is easing, but the renewed rise in energy prices complicates the outlook. Policymakers are increasingly balancing progress on core inflation against the risk that higher oil prices could slow or even reverse that trend. 

Markets have begun to reassess the timing of rate cuts, with expectations shifting slightly later as a result of the energy shock. 

In the UK, the Bank of England held the base rate at 3.75%, maintaining a cautious, data-dependent stance. While domestic inflation pressures have eased, higher global energy costs present a potential upside risk to inflation in the months ahead. 

This creates a more difficult policy backdrop: growth remains weak, but inflation risks have not fully disappeared. 

 

UK: Weak Growth Meets External Pressure 

The UK economy continues to show weak underlying momentum. Consumer spending remains subdued, business investment is limited, and the labour market is gradually softening. 

However, the external environment has become more challenging. Rising global energy prices are likely to feed into household costs and business input prices, potentially slowing the disinflation process. 

Despite this, UK equities continue to perform well. The FTSE 100 remains heavily weighted toward globally exposed companies, particularly in energy, mining and financials. This means that global developments — rather than domestic conditions — are the primary driver of returns. 

With UK and European markets still trading at a valuation discount to the U.S., relative performance continues to favour these regions. 

 

Other Viewpoints 

Cash 

Cash returns remain relatively attractive, but the outlook is becoming more uncertain. If inflation proves more persistent due to energy prices, rate cuts may be delayed, extending the period of higher cash returns. 

Fixed Interest 

Bond markets experienced increased volatility during March. Rising oil prices and shifting rate expectations pushed yields higher in the short term, although longer-term expectations for easing remain intact. 

Fixed income continues to offer income and diversification, but the path forward is likely to be less smooth than earlier in the year. 

Alternatives 

Gold strengthened further during March, benefiting from geopolitical uncertainty and inflation concerns. Commodities — particularly energy — were the standout performers, reflecting supply disruptions. 

Real assets continue to play an important role in protecting portfolios against inflation and geopolitical risk. 

UK Shares 

UK equities remained resilient, supported by strong performance in energy and commodity-linked sectors. The FTSE 100 continues to benefit from its global exposure and relatively low valuations. 

US Shares 

U.S. equities have continued to underperform global peers. Market leadership remains narrow, and the recent weakness in large technology companies has exposed the vulnerability of the indices to sentiment shifts. 

With valuations still elevated and macro risks increasing, the case for heavy U.S. concentration remains less compelling than in previous years. 

European Shares 

European equities have held up well despite geopolitical proximity to the conflict. Lower valuations and global exposure continue to support the region, although energy dependence remains a risk. 

Asian Shares 

Japan continues to benefit from structural reform and strong investor inflows. India remains a standout long-term growth story. China remains mixed, with policy support offsetting structural challenges. 

Emerging Markets 

Emerging markets delivered mixed performance. Commodity exporters benefited from higher prices, while energy importers faced increasing pressure from rising costs. Selectivity remains key. 

 

Highlights & Risks 

Highlights 

  • Energy and commodity exposure provided strong portfolio support.
    • UK, European and Asian equities continue to offer better relative value than the U.S.
    • Gold and real assets performed well amid rising geopolitical risk.
    • Diversification continues to prove effective during periods of volatility. 

Risks 

  • Prolonged disruption in the Strait of Hormuz could sustain high inflation.
    • Central banks may delay rate cuts in response to rising energy prices.
    • U.S. equity valuations and concentration risk remain elevated.
    • Geopolitical escalation could lead to further market volatility.