The escape path for markets is as narrow as the Strait of Hormuz - and just as treacherous to navigate. A longer-lasting impact on economies and macro conditions, combined with a skewed earnings picture, clouds the path ahead.
The Middle East conflict did not create a new crisis. It accelerated many of our concerns at the start of the year. Geopolitics, driven often by megalomania, is near impossible to forecast – but its aftereffects impact markets with certainty. The underpriced and under-appreciated risk is now a present and clear danger to economic growth, margins, risk premia, and hence markets.
Navigating the current environment is primarily about capital preservation with an eye on deep value opportunities (which are still few at this stage). Unlike cyclical downturns, the geopolitical shock will have a skewed impact -the winners will not only hold value, but compound over time. And there will be a plethora of losers - tempting as they may be, we would avoid catching falling knives.
No deep value yet. Overweight AI Infrastructure, Defense/ Industrials, Energy Security (fossil fuels and renewables, particularly Nuclear). Tactical opportunity in Financials. Underweight retail, software/ SaaS.
Overweight, North Asia Tech, Europe Defense/ Industrials (broad Europe Indices - Underweight). India downgraded to Neutral.
Overweight Investment Grade; Underweight High-Yield. Overweight European Financials.
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Tactical Overweight on the Dollar. Buy the dip in Gold.
Neutral/ Bearish on bulk commodities. Overweight Copper and Uranium. Stay Overweight Oil & Nat Gas, until war cries become muted.
Overweight Macro, Long-Short Strategies.
Selective, Asia focused bias on Private Credit.
