Hello,

For most of February, global financial markets were relatively positive. Share markets rose in many regions, supported by improving economic data, steady company earnings and a shift in investor preferences towards more attractively valued areas of the market.

Japanese equities were a standout performer, with the Nikkei index rising strongly following a decisive election result that boosted confidence in economic reforms. More broadly, markets continued a rotation away from some of the large, fast-growing technology companies that had led returns in recent years, towards smaller companies, value^1.-oriented businesses and markets outside the United States.

Fixed income markets also performed well for much of the month. Government bond^2. prices rose as yields^3. fell, helped by signs that inflation pressures may be easing and by comments from central banks, including the Bank of England, that were slightly more supportive of future interest-rate cuts. Gold recovered after a weaker start to the year as investors continued to value its role as a defensive asset.

However, markets became more volatile at the end of the month following a sharp escalation in geopolitical tensions in the Middle East. The United States and Israel carried out strikes on Iranian targets, prompting retaliatory action from Iran across the Gulf region. This escalation has raised concerns about regional stability and the potential disruption to global energy supplies.

One area receiving particular attention is the Strait of Hormuz, a key shipping route through which a significant share of the world’s oil and liquified natural gas passes. Warnings from Iran and increased security risks have slowed tanker movements through the region, pushing oil prices higher and increasing volatility in energy markets.

Brent crude oil prices rose at one point to beyond $100 per barrel as traders priced in the possibility of longer-lasting disruption. European natural gas prices also moved higher on concerns about energy security. However, it is worth noting that energy prices remain well below the extreme levels seen following Russia’s invasion of Ukraine and are broadly back within ranges seen earlier this year.

Higher energy prices have also influenced bond markets, as investors reassess the potential impact on inflation. Yields on government bonds in both the US and Europe have risen modestly as markets consider whether central banks may delay or slow interest rate cuts if inflation proves more persistent. Even so, yields are broadly back to levels seen at the start of the year.

Equity markets experienced a short-term sell-off as tensions increased, but much of this reflected a pullback from strong gains earlier in the year rather than a fundamental deterioration in company prospects. In fact, many major market indices remain close to recent highs, highlighting the underlying resilience of global equities.

Historically, markets have often reacted sharply to geopolitical shocks in the short term, but volatility typically fades as the situation becomes clearer. Unless conflicts widen significantly, financial markets have generally recovered within weeks following similar events.

While geopolitical events are difficult to predict, our investment approach is designed to consider a wide range of possible scenarios — including geopolitical escalation, changes in inflation, shifts in global trade and other economic shocks by having exposure to a well-diversified, multi-asset portfolio.

Rather than attempting to forecast short-term market movements or commodity prices, we focus on clients maintaining diversified portfolios that can perform across different environments. This includes exposure to a range of asset classes, regions and investment styles, helping portfolios remain resilient even during periods of market uncertainty.

Key Takeaways

• February highlighted the benefits of maintaining a well-diversified, multi-asset portfolio.
• Geopolitical events can cause short-term volatility, but markets often recover as uncertainty fades.
• Energy prices and inflation will be important factorsto watch in the coming months.
• A flexible and diversified investment approachremains essential as markets navigate changing economic and geopolitical conditions.

^1.Value investors seek to identify companies where they believe the share price does not reflect the true value of the business. Value stocks are often companies that are out of favour with investors.

^2.Bonds are interest paying financial products issued by governments, companies and other institutions when they want to borrow money from investors.

^3.Yield is the income paid by bonds or other investments. It is usually stated as a percentage of the value of the investment.

Kind regards,

iPensions Wealth Team

Investment risks

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