Two months into 2026, the list of market-moving events is exhaustive: the ongoing geopolitical standoff in the Middle East, the US capture of the former Venezuelan President, threats to Greenland’s sovereignty, and a significant US Supreme Court tariff ruling followed by President Trump’s call for a revamped trade structure.
Despite this, global equities reached all-time highs in late February. If you had predicted such a volatile news cycle at the start of the year, most would have expected markets to be significantly lower. Now, as tensions flare in the Middle East, we are forced to ask: are investors being dangerously complacent, or are they simply dismissing the noise? My view is that it is a bit of both.
The Macro Context
Before the recent regional instability, the macroeconomic environment appeared ‘Goldilocks-like’. Global growth was accelerating, inflation was cooling, and interest rate cuts were anticipated across the US, UK, and various Emerging Markets. Furthermore, corporate earnings expectations were rising.
Then, the conflict in the Middle East intensified, threatening the Strait of Hormuz – a transit point for 20 per cent of the world’s oil and liquefied natural gas (LNG). While traffic has stalled and production in certain sectors has been disrupted, we believe these issues are likely transitory.
The Economic Transmission Mechanism
Geopolitical tensions translate into economic reality primarily through energy prices. Higher oil and gas costs act as a “hidden tax” on consumers and businesses, slowing economic activity and reigniting inflationary pressures. Central banks can only ignore these impacts for so long before they are forced to intervene.
Our central scenario remains that this conflict will be measured in weeks rather than months. If this holds, energy prices should normalize, allowing markets to refocus on strong underlying fundamentals. While we cannot rule out a more prolonged conflict, political incentives – particularly ahead of the US mid-terms – suggest a drive towards resolution, whether through military posture or negotiation.
Navigating the Portfolio
How should you respond? As with most financial decisions, balance is the key.
Three core principles should guide your strategy:
Diversification is essential: The narrower the investment, the greater the probability and potential size of a loss.
Avoid prediction traps: We consistently overestimate our ability to predict the future.
Embrace breadth: Broader exposure improves the probability of gains.
Since 1992, a simple portfolio of 60pc global equity and 40pc global bonds has had a 93pc probability of generating a positive return in any given month. We recommend allocating 70–90pc of your portfolio across diverse geographies and asset classes – equities, bonds, gold, private assets, and hedge fund strategies – as a vital foundation.
The decision-making process is simple: invest consistently and accelerate your allocations during market weakness. A reliable rule of thumb is to increase purchases when you are most concerned; markets typically bottom out during the worst of times. It is difficult to execute, but historically, it has been highly rewarding.
Sector Outlook: Technology
The remainder of your portfolio can target areas positioned to outperform. We remain positive on the US technology sector. We do not view it as a bubble, but rather a space supported by robust earnings growth and a planned increase in CapEx – which we expect to rise by over 50pc in 2026, driven by AI investment.
However, we are selective. We favour semiconductors and internet infrastructure over software. Furthermore, recent broad-based sell-offs due to AI-related anxiety have created value. Specifically, we view cybersecurity as essential backbone infrastructure; the “sell now, worry later” market sentiment has created an attractive entry point here.
Geopolitical uncertainty is difficult to time. The most effective strategy is to look past the headlines and focus on enduring fundamentals to drive long-term portfolio success.
(The author is global chief investment officer at Standard Chartered’s Wealth Solutions unit)
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