‍

Clearly one theme dominated in March - Iran. Despite the decapitation of the Iranian Regime early on, one set of hardliners were then replaced with another and what felt like being a short sharp conflict in Iran is in danger of turning into an attritional war spreading across the Middle East.

‍

From an investment perspective all eyes are fixated on the price of oil as the closure of the strategically important Straits of Hormuz has strangled supply, resulting in the largest monthly rise on record in the price of Brent crude oil. The implications are far reaching, and markets have been in turmoil as the relatively benign economic backdrop that was in place at the end of February has been replaced by widespread turbulence and a significant risk of a sharp slowdown in the global economy.

‍

The key question for markets is what is the end game? The answer to that is a complete unknown as Donald Trump appears to have no coherent plan and changes his mind by the hour. At the very end of the month (after most markets except the US had closed) hopes of a swift end to conflict were boosted as Trump said the US would leave Iran in "two to three weeks" regardless of whether they reached a deal with Tehran.

‍

Central bankers are suddenly having to contend with huge uncertainty and attempting to manage the risk of accelerating inflation as energy prices spiral. It is no surprise that most were taking a “wait and see” approach and holding interest rates steady in March whilst highlighting the risks of rising prices from a prolonged war. However, it would be misguided to assume this will lead to interest rate rises. Markets are pricing in the US Federal Reserve maintaining rates at current levels and potentially cutting later in the year as the effect of the war could be more of risk to growth and avoiding recession their priority. Europe and Asia appear to be the most exposed as energy imports are such a vital cog in their economies, but even taking this into account tightening monetary policy is a blunt tool to deal with any kind of a supply shock.

‍

At home, the economic backdrop was looking gloomy before the conflict with the UK expected to grow more slowly than previously thought, with 1.1% growth predicted in 2026 compared to the OBR’s earlier prediction of 1.3%. Rachel Reeves’ Spring statement did little to cheer markets and felt irrelevant relying on backward-looking economic data, with shocks from sharply increased energy prices inevitably seeing inflation rise, growth fall and living standards squeezed. Somewhat bizarrely markets are pricing in three UK interest rate rises this year despite multiple Bank of England committee members stating rates will be held steady. Such a lack of clarity shows how difficult it is to have a coherent short-term investment strategy. As such the usual “investing in a crisis” rules apply, focusing on the long-term and not getting swayed to sell at the wrong time driven by the emotion of fear.

‍

The publication of UBS’s annual Investment Returns Yearbook last month was timely in providing strong empirical evidence going back to 1900 showing that in all but the most drastic periods of geopolitical uncertainty investors would have been correct to look through the noise and maintain a long-term approach.

‍

Starting with stockmarkets and March was a sea of red with all major markets showing losses and levels of volatility spiking as investors attempted to assess the risks to the global economy of the war. The Global benchmark MSCI World index fell 5.7%. Energy was the dominant theme and oil importing nations were among the worst hit; Japan’s Topix fell by 10.5% with the Japanese economy highly dependent on oil imports and for the same reason MSCI India fell 13% and Emerging Markets and Asia ex Japan indices saw double digit losses. No major index fared well (although oil rich Norway was up 12%!). The US proved relatively resilient over the month down 5%, and their market benefited from a sharp bounce at the end of the month on renewed hope of a swift resolution to the conflict. The FTSE All Share index fell 6.7% and UK smaller companies was hit hard with the benchmark off 10% as the OECD predicted the UK economy will be the hit hardest hit of G20 Countries from the Iran war. Whilst a painful month for equity investors it needs to be viewed in context of strong recent gains and year to date UK, Japanese, Asian and emerging market benchmarks are still showing a profit.

‍

It felt like a month where there was nowhere to hide with a weak month for Government bond markets as well spooked by the spectre of energy prices leading to higher inflation. Most areas of bond market saw prices falling and yields rising. The UK ten-year gilt started March offering 4.23% and now pays 4.91%. The direction of travel in the US was the same just not the magnitude. The ten-year Treasury offered 3.94% a month ago and now pays 4.32%. The ten-year Japanese Government Bond has been slightly calmer with the yield rising from 2.11% to 2.35%.

‍

In commodity markets the consequence of the Iran incursion has been mostly evidently felt in the oil markets with the price of a barrel of Brent crude up over 60% at the peak. March started with Brent costing $72.87 and closed at $103.23 a barrel, with the price peaking at $119. 10% or greater daily moves seemed commonplace, and the oil price is now the key metric that will dominate short-term investor sentiment. Natural gas had an even more meteoric rise with a therm up from 77.9p a month ago to hit a high of 159.2 pence before closing at 127p.

‍

Gold is traditionally seen as a haven during periods of geopolitical led risk aversion but that was not the case in March with wild swings in the gold (and silver) price and a fall of 10.5% over the month as investors became concerned of the potential impact of a higher for longer interest rate environment reducing the attraction of non-yielding precious metals.

‍

In currency markets, March showed the risk of writing off the dollar, which rallied versus other currencies in the flight to safety. The pound had a mixed month down 1.8% versus the dollar but gained against Yen and Euro on expectations of higher rates.

‍

The latest Bank of America Fund manager survey (unsurprisingly) saw investor sentiment sharply decline and stagflation is now the dominant theme with half of respondents seeing this as the greatest threat. It is somewhat of a misnomer that during periods of market stress equity fund managers are aggressively trading their portfolios (they leave that to the day traders and hedge fund managers). Most fund managers we have been speaking to remain focused on company fundamentals, whilst taking selective opportunities to buy areas they believe to have been indiscriminately over sold due to negative sentiment. Bond managers tend to be more focused on the top-down economic environment and Bloomberg reported that leading bond managers Pimco, Threadneedle and JPMorgan are preparing for a sharp slowdown and an increasing probability of recession.

‍

The numbers…

Monthly performance figures 28/2/26 to 31/3/26 source FE Analytics. N.b. the fund sectors exclude money market funds, markets are in local currency, and investment trusts exclude VCTs.

Important Information

This document is produced by Fairview Investing Ltd, an independent research consultancy in conjunction with James Scott-Hopkins. The content is for information purposes only and does not constitute financial advice. The commentary or research provided do not constitute a personal recommendation to deal. Any statements, opinions, forecasts, and figures are made by Fairview Investing (unless otherwise stated). They are considered to be reliable at the time of writing but may be subject to change.

Fairview Investing accepts no legal responsibility or liability for the content of this material. The contents of the document are not to be re-produced or circulated without the express permission of Fairview Investing Ltd. Fairview are independent investment consultants sitting on the Investment Committee of EXE Capital Management.

‍

‍