Monthly House View
29.04.20263 min
This Time Is Different (Again)
While stock markets are reacting similarly to previous geopolitical shocks, the current global energy shock stands out due to economies markedly different starting points leading to varied policy responses and outcomes compared to the last energy crisis. Discover what this means for our convictions regarding active allocation.
The recent ceasefire has brought calm to markets, removing a significant risk premium and providing a temporary respite from the worst-case scenario. As of mid-April, the situation remains fluid, but both sides appear inclined towards de-escalation, with indications of Chinese influence operating discreetly in the background.
Resilient corporate fundamentals
While the medium-term impact remains uncertain, underlying company fundamentals continue to demonstrate resilience and support a constructive stance. Markets rebounded swiftly and this is a good reminder for investors of the difficulty of market timing (especially when it depends on one ‘tweet’) and the importance to stay invested.
Within equities, the US-Iran ceasefire arrived just in time and has, for now, averted the most severe market outcomes and allowed for a rapid recovery in risk assets. Should this rebound prove sustainable, market behaviour could echo previous geopolitical episodes, where indices typically find a floor within a month of initial corrections, before resuming their upward trajectory.
Renewed volatility remains possible
However, the unpredictable nature of military conflicts means renewed volatility cannot be ruled out, particularly if oil prices surge again. The first quarter earnings season will provide greater clarity on the impact of recent events at the corporate level.
Thus far, earnings revisions have remained solid, indeed, they were revised upward, even as global valuations have compressed.
US market benefits from energy independence
In the United States, the market benefits from energy independence while AI continues to underpin performance and earnings, with ongoing scrutiny of the sustainability of investment flows in this sector. Economic growth expectations remain relatively robust, and monetary policy continues to provide support.
US mid-cap companies in particular, have outperformed, benefitting from anticipated productivity gains linked to AI, as well as the positive effects of interest rate reductions. While valuations remain more demanding than in other regions, they are more attractive than before the recent conflict, supported by ample liquidity and a more sustainable outlook for technology stocks
DiversificationDiversification benefits in emerging marketsemerging markets
Emerging marketsEmerging markets continue to offer diversificationdiversification benefits. After a notable period of outperformance, we moderated our positioning in March to reflect less favourable short-term dynamics, with Asia more impacted by rising oil prices and the recent appreciation of the dollar.
Nevertheless, our strategic outlook remains constructive, anchored by strong fundamentals, positive earnings momentum, and proactive economic policies. Select regions and themes continue to present compelling opportunities, particularly in the technology sector in Asia and across Latin American markets, where increased demand for commodities provides further support. In contrast, Japan’s greater exposure to energy imports and weak currency warrants a more cautious approach.
Challenging outlook for Europe
In Europe, the outlook has become more challenging, and we have reduced our exposure accordingly through lower conviction on European small caps. Although the region is not facing an imminent recession and opportunities persist in sectors linked to the “Strategic Autonomy” thematic, Europe, like Japan, remains highly exposed to energy shocks.
The reopening of the Strait of Hormuz will not eliminate the need to rebuild energy inventories, and competition from Asia for resources is likely to persist. While earnings growth is positive, upside revisions have lagged those in other regions. Valuations have improved, though less than in other markets, and the performance of small and mid-cap companies warrants ongoing scrutiny in light of tightening financial conditions and energy-driven inflationary pressures.
