We begin deploying into equities

It’s been another turbulent week across financial markets as investors deal with the ongoing (and in many cases, escalating) conflict in the Middle East precipitated by the 28 February 2026 strikes by the US and Israel across Iran. Throughout this period, we have continued parsing developments through our constraints-based framework and tracking the key signposts that we identified in our 3 March 2026 Special Report as the conflict commenced. This is the same process by which we navigated 2025’s Liberation Day market shock, though of course today’s situation bears its own unique set of risks and uncertainties.

Clearly, the situation on the ground remains highly uncertain, with Iran recently selecting Mojtaba Khamenei as its new Supreme Leader, while the conflict continues to escalate and broaden to include vital energy and social infrastructure across the region. We acknowledge these extreme levels of uncertainty, but we believe that we have seen sufficient signs of market-based stress, and sufficient (nascent) signals that negative policy momentum may be peaking, to justify beginning to deploy capital into the market.

We do this modestly, and with the open and humble recognition that we may be early, and that downside risks (including further escalation of the conflict and further damage to the global economy and markets) remain highly visible. We retain a flexible and nimble stance and stand ready to make further changes to our tactical positioning in coming weeks should the situation warrant.

We modestly increase our equity overweight from +2 to +3 via Japanese equities

We note the following key investment-relevant developments on the ground:

• As we noted in our Special Report, the triple constraints of the bond market (via higher US Treasury yields), oil prices, and a lack of boots on the ground have begun to pressure US President Trump in recent days. While his moment-to-moment rhetoric remains capricious (potentially for war-time propaganda purposes), we believe he is now clearly expressing a preference for de-escalation, “declaring victory”, and doing a deal with Iran in some way, shape or form. 

• We are also seeing reports from various sources indicating a significant degradation in Iran’s conventional military capabilities that suggest a peak in conventional hostilities may be close, though of course we cannot rule out asymmetric actions, particularly around the Strait of Hormuz and/or vital energy and social infrastructure.

   

• We are seeing incremental signs of an inflection in policymaker support – G7 finance ministers met on 9 March 2026 to discuss a co-ordinated release of strategic petroleum reserves to stabilise global oil markets. According to the International Energy Agency (IEA), member countries hold over 1.2 billion barrels of public emergency petroleum reserves, with a further 600 million barrels of industry stocks held under government obligation. In addition, prior to this conflict, the global oil market was in a state of near-unprecedented over-supply, with the IEA recently projecting a global oil surplus of ~4 million barrels per day in 2026, driven by rising production.

   

• A combination of these factors has seen a potential near-term peak in oil prices, with Brent crude peaking just under US$120 per barrel on 9 March 2026 amid historic volatility, to trade around US$90 per barrel.

   

• Looking at financial markets, the famous Chicago Board Options Exchange’s CBOE Volatility Index (VIX) peaked at around 35 on 9 March 2026, a level that has historically signalled panicky or capitulating markets. Historically, investors have a 90% chance of a positive 12-month forward outcome for equities when the VIX hits 35.

   

• NATO allies including France, as well as other nations including Pakistan, are beginning to commit military resources to the region, potentially helping or freeing up US resources to secure the Strait of Hormuz. On this, we are noting very tentative signs of a minor pick-up in vessels transiting through the Strait of Hormuz, based on data from S&P Global and Kpler.

While we remain well shy of a fully deployed equity allocation, we do believe that there is sufficient momentum across these factors to justify increasing allocations to global equities, and we do this via an increased exposure to Japanese equities. As a net oil importer and with high exposure to global trade, the Japanese market has been sharply negatively impacted by this conflict. As a result, historical precedents have shown it to be highly levered to a potential recovery in risk sentiment, should we get one.

Throughout the conflict in Iran, we have retained our prevailing constructive outlook for the Japanese market, from a top-down perspective (fiscal stimulus from the newly re-elected Takaichi government and Japan’s ongoing journey out of secular stagnation) and a bottoms-up perspective (corporate governance reforms that are continuing to add value to investors, as well as ongoing reforms aimed at unleashing Japanese households’ ~50% cash holdings into the market).

We recognise multiple key uncertainties and key risks to our views

We remain cognisant that this geo-political shock is fluid and may evolve negatively from here. Nonetheless, we aim to utilise our disciplined frameworks and signposts to help us to stage our actions. We duly recognise that there are many key uncertainties and risks to our views, including but not limited to:

• While we believe US President Trump has hit the limits of his constraints, it is unclear how far Israeli PM Netanyahu wishes to pursue his goal of total regime change, and it is even more unclear what internal constraints Iran’s newly elected Supreme Leader Mojtaba Khamenei faces, as well as what he decides to do in his first few days in office.
• Clearly, we remain deep in the fog of war, with extreme uncertainty as to how much more the conflict might progress, escalate, or expand to other regions.
• There is also high uncertainty as to how much central authority Tehran has left – even if a deal might be made between the US and Iran, can Iran sufficiently marshal its dispersed and asymmetric military and proxies to conform?
• Markets are broadly continuing to display a buy-the-dip mentality, such that the magnitudes of drawdowns we are seeing across the globe (~6% in Japan, Europe, and emerging markets, ~5% in Australia, ~3% in the US) are not at ‘screamingly attractive’ levels. This reduces the margin-of-error of deploying now if another downside shock hits.
• We could be very wrong on our (lightly held) view that oil prices may have peaked. Further signs of disruption or conflict in the Strait of Hormuz could easily see oil prices spike back above US$120 a barrel or even higher. In addition, a formal cease-fire does not necessarily guarantee a return to normal energy transit through the Straits of Hormuz.
• We have also yet to see the impacts of the oil price spike flow through broader economic, corporate, and employment activity. There is still a decent chance that this shock might tip a moderating US economy into recession.
• We also recognise various prevailing investor concerns around private credit and the artificial intelligence-software rotation.

In short, there is a reasonable possibility that we may be a bit early in our call to begin deploying into equities today! Unfortunately, trying to time an exact bottom in markets is a fools’ errand. Instead of attempting this, we are relying on discipline, process, and our advantages as a long-term investor to help us navigate what is an admittedly volatile and at times scary market. We maintain our flexible and nimble stance, we stand ready to take further actions in coming weeks as market conditions and our assessments change, whether that be deploying further into weaker markets, or de-risking if conditions require it.

Discipline and diversification remain an investor’s best friend in trying times

Abstracting from the tactical moves that we are making today, we think investors should also not lose track of the fundamental importance of discipline and diversification in their long-term investment strategies. As we discussed in our April 2025 Special Report ‘Staying the Course’, we have spent recent years emphasising the significance of building robust portfolios that are diversified across asset classes and risk factors, and not overly exposed to any particular style or theme. 

This disciplined, multi-asset approach is core to our investment philosophy and process, and will play a crucial role in helping investors navigate short-term shocks such as these. To provide some preliminary context as to the power of diversification, as of 10 March 2026, the S&P/ASX 200 Index has lost about 5%, while the MSCI World Index is down around 2% since the start of March. In contrast, we estimate that a diversified, multi-asset Balanced portfolio has lost around 1% over that period, cushioning astute investors and putting them in a solid position to begin leaning in while others are panicking.

Key takeaways 

1. It’s been another turbulent week across financial markets as investors deal with the ongoing (and in many cases, escalating) conflict in the Middle East precipitated by the 28 February 2026 strikes by the US and Israel across Iran. Throughout this period, we have continued parsing developments through our constraints-based framework and tracking the key signposts that we identified in our 3 March 2026 Special Report as the conflict commenced.

    

2. Clearly, the situation on the ground remains highly uncertain, with Iran recently selecting Mojtaba Khamenei as its new Supreme Leader, while the conflict continues to escalate and broaden to include vital energy and social infrastructure across the region. We acknowledge these extreme levels of uncertainty, but we believe that we have seen sufficient signs of market-based stress, and sufficient (nascent) signals that negative policy momentum may be peaking, to justify beginning to deploy modestly into the market.

3. We do this with the open and humble recognition that we may be early, and that downside risks (including further escalation of the conflict and further damage to the global economy and markets) remain highly visible. We retain a flexible and nimble stance and stand ready to make further changes to our tactical positioning in coming weeks should the situation warrant.