The war in Iran has triggered a historic disruption in the Strait of Hormuz, driving oil & gas prices higher and exposing vulnerable energy-importing regions. This shock is fueling concerns over higher inflation and rising bond yields, creating a volatile environment where commodities lead while global equities and traditional bond diversifiers underperform.
Global economic growth hovered near trend in 2025. The dollar weakened sharply, while global equities and commodities posted strong gains. Bond returns improved as rates and credit spreads eased.
Yes. The range of possible outcomes for the US economy has widened, with greater chances of both positive and negative tail events.
Within public equities, investors should modestly overweight global ex US equities, developed markets small-cap stocks, and Latin American equities in 2026, as these regions offer attractive valuations, improving growth prospects, and diversification benefits.
Long-dated government bonds have come under pressure in recent months, but markets are not beginning to price in a fiscal crisis in our view. Drawing on market data and institutional trends, we believe they will continue to behave defensively during deflationary shocks.
Given the fluidity of the situation in the Middle East and the uncertainty surrounding how events may unfold, we believe most investors should not make changes to portfolios in response to this event.
After a prolonged period of US outperformance, many investment portfolios have become heavily concentrated in US equities, but recent policy shifts now challenge US economic and financial hegemony. Investors should carefully evaluate these exposures to determine if greater diversification is warranted.
Yes, in response to weak growth and a changing defence landscape, taking off the fiscal straitjacket should catalyse a more growth-supportive economic environment within Europe.
No. All three factors have weighed on euro area equity and currency markets to some extent in recent months, but we recommend continuing to hold euro area equities at benchmark weights.
We expect developed markets value and small-cap equities to outperform, given our economic views and their steep valuation discounts. Regionally, we believe US equity performance will not match the level set in 2024, allowing European, Japanese, and emerging markets equities to perform more in line with broader developed markets. Within emerging markets, strong Indian equity gains should moderate, while we doubt Chinese equities will collapse. At the same time, we expect long/short equity strategies will perform better than typical.