Middle East - Our Assessment

The direct military confrontation between the U.S./Israel and Iran has led to meaningful declines across global equity markets.

Energy Supply and Macro Risks 

In our view, financial markets are assessing the economic implications in a measured way. The primary concern is higher energy prices stemming from potential disruptions to oil supply and attacks on critical energy infrastructure. Oil and gas prices have moved higher. If the conflict were to persist, sustained energy price pressure would add to inflationary forces and weigh on global growth.

Emotional Strain - Disciplined Execution 

Periods like this are emotionally challenging. Headlines are negative and markets are volatile. However, portfolio positioning is determined with precisely these scenarios in mind. Strategic equity allocations are set in advance to reflect long-term objectives and risk tolerance. The priority now is to adhere to that strategy rather than react to short-term market moves.

Within our discretionary mandates, equity exposure remains aligned with each client’s strategic target allocation. We are neither overweight nor underweight equities. The quality companies we hold have no direct exposure to developments in the Middle East. We hold neither equities nor bonds in the region. Even in the event of greater involvement by China, there would be no direct portfolio impact, as we do not hold Chinese equities.

Given that nearly all client portfolios include fixed income allocations, this segment provides an important stabilizing effect. The bond sleeve has performed well year-to-date.

Maintaining Perspective 

Should the nuclear risk associated with Iran be resolved, a key source of market uncertainty would be removed.

If, however, the conflict were to broaden or persist, the roles of China and Russia would become increasingly relevant. The range of potential outcomes is wide, including scenarios with adverse implications.

Markets are adjusting within this shifting probability set. Our guidance in this environment is straightforward: remain disciplined. Large portfolio changes during periods of heightened volatility increase the likelihood of suboptimal decisions.

Our Conclusion

In the weeks ahead, markets are likely to be driven more than usual by daily news flow. We believe portfolios are well positioned for this environment. We do not hold concentrated exposures to areas of elevated geopolitical risk, nor are we excessively exposed to any single sector.

We are not sellers in phases like this. A resilient portfolio construction and a clearly defined strategy are essential to staying invested. At the same time, extended periods of dislocation often create attractive long-term opportunities.

If you have any questions or would like a personal assessment, please contact your client advisor.