This month, our monthly commentary does not primarily focus on U.S. tariff policy for once, which had been the central topic in recent months. The latest developments in the Middle East are significantly affecting the global economy and have already led to a wide range of direct and indirect consequences. According to the Financial Times, the sharp rise in energy prices could trigger a second wave of inflation – just as major consumer goods manufacturers had begun to reverse their previously steep price increases. Higher costs for oil, transportation, fertilizers, and packaging materials are adding further pressure on companies, while consumers are scarcely willing or able to accept additional price hikes. Many producers now face a choice between protecting their margins or safeguarding their sales volumes. Unsurprisingly, the U.S. Federal Reserve also warned of higher short‑term inflation rates and raised its forecast for 2026, while leaving the policy rate unchanged. The current situation greatly complicates the work of central bankers: Should energy prices remain elevated for an extended period, inflation would rise significantly – but it would be driven by supply‑side forces (“cost‑push inflation”). Such a supply shock has a dampening effect on economic activity and may, to some extent, have similar effects as interest rate increases. In such an environment, higher policy rates may have only limited effectiveness, as they do not address the underlying cost shocks and could even exacerbate economic weakness. The U.S. government has repeatedly suggested that the conflict with Iran could be resolved soon, but from our perspective, a swift solution appears uncertain. What seems almost certain, however, is that Iran has discovered a new form of strategic leverage over the West by effectively closing the Strait of Hormuz. This allows the country to inflict substantial economic damage while potentially creating an extremely lucrative source of revenue by charging ships for safe passage. Aside from a militarily enforced reopening of the strait, negotiations remain the only path forward – with the risk that the Iranian regime might emerge strengthened from the conflict.
Against the backdrop of recent developments in the Middle East, global equity markets experienced the expected high levels of volatility in March. This raises the question of which regions, sectors, and companies are best positioned to navigate the current environment. Excluding the energy sector – which is benefiting from the situation, at least temporarily – the picture remains mixed. The substantial investments in data centers for artificial intelligence highlight an increasingly challenging environment for certain companies: the operating costs of this energy‑intensive infrastructure are likely to rise further in line with higher energy prices and – depending on the respective financing structures – could noticeably impair profitability. If this trend continues, companies with significant exposure could face an increasing likelihood of impairments and asset write‑downs. Given the still demanding valuation levels, this implies a degree of risk for price adjustments in the technology sector as well as for financial institutions with similar exposure. To address such scenarios and general market risks, we use targeted hedging instruments such as put options and would realize them when market conditions are suitable. Our equity allocation remains clearly focused on the factor premiums Quality and Momentum, as long‑term investments in sustainably profitable companies with stable cash flows and intact structural trends have proven particularly resilient over extended periods.
Since the beginning of the Iran war, foreign central banks’ holdings of U.S. Treasuries at the New York Fed have declined sharply. These repatriations are hitting an already strained Treasury market, where persistent inflation concerns continue to push yields higher, thereby significantly increasing financing costs for governments, companies, and households. European government bonds also experienced one of their weakest months of the past decade in the wake of the Iran shock: the yields on ten‑year bonds in Italy, France, and Spain reached multi‑year highs – further burdened by rising fiscal risks as governments respond to higher energy prices with costly measures. Our cautious stance toward nominal assets has proven beneficial in this environment. Given the sharp rise in oil prices, we are maintaining this positioning and view gold – following its brief yet pronounced correction – as once again significantly more attractive.
The recent energy shock was long underestimated by the markets. Supply shocks of this kind traditionally pose difficult trade‑offs for central banks, as they can fuel both inflation and economic stagnation. While economies today are less energy‑intensive and labor markets less forceful, years of stability, a prolonged low‑interest‑rate environment, and the post‑pandemic underestimation of inflation dynamics have contributed to a renewed wave of price pressures. At the same time, public debt levels in many countries are at record highs, increasing the risk of future debt monetization. For investors, this creates a challenging environment marked by geopolitical uncertainty, stagflation risks, and elevated debt burdens. Recent developments could also shift the global balance of power and have far‑reaching economic implications. In such a setting, a broadly diversified allocation across asset classes, sectors, and regions – supplemented by targeted hedging – remains a prudent approach. Overall, we therefore remain cautiously optimistic.