What does the Middle East conflict mean for my investments?

In light of events in the Middle East, our investment team revisits the key themes laid out in our 2026 Investment Outlook, explaining how, or if, they are impacted.

Since the initial strikes in Iran, the conflict has entangled various Middle Eastern nations, not all of which are directly involved.

This has created a fast-moving, complex situation, making it difficult for investors to assess implications and next steps.

Here, we revisit each of the key themes explored in our 2026 Investment Outlook, and ask the investment team how sensitive they believe the theme is to the developing conflict.

Key themes:

Our investment team has been monitoring news and markets closely, assessing how the conflict might alter their long-term views, and weighing if portfolio changes are needed.

If you want to speak to one of our experts, you can book a free consultation.

US equities – Checking the foundations of optimism

Going into 2026, the investment team was largely positive on higher risk assets like equities.

Central to this was strength in company earnings across most major regions, but especially so in the US. The team also highlighted that US equities are exposed to the unique combination of ongoing artificial intelligence (AI) investment as well as supportive government policy. These factors are less sensitive to the geopolitical turmoil.

Although US equities have not been immune from recent market volatility, the investment team believes the investment case remains strong.

Scott Gardner, Investment Strategist, explains that confident US companies and US consumers indicate a US economy in good health.

"Company balance sheets look sturdy overall. We can also see that companies are planning to invest in future growth via what investors call capital expenditure, or ‘capex’. Investment in the AI ‘revolution’ is a big part of this, but not all of it.

"The US consumer is also really important to the economy, and positive real wage growth means they’re spending well. If the inflation backdrop does change, consumer spending may begin to slow, so we will closely monitor this. As things stand, the picture is of a robust US economy, and we remain overweight US Equities."

Emerging markets – Emphasis remains on selectivity

The investment team explained in our Investment Outlook 2026 that emerging markets offer compelling growth potential for the long term, but strongly emphasised the importance of selectivity. This remains true.

Emerging markets vary significantly by country and region, and performance will likely continue to vary too.

For example, South Korea and Taiwan are home to globally competitive manufacturers of advanced semiconductors. These firms make the building blocks of AI development, and are therefore instrumental to one of the most powerful themes of the decade. We believe the theme of AI development remains largely resilient to current events.

By contrast, the sluggishness of China’s economy – pointed out going into 2026 – has not improved, and the investment team still sees little prospect of a near-term reversal of fortunes.

GDP growth is weak, the property sector subdued, and domestic consumption is lacklustre. The type of sustained government intervention that could turn things around is also not on the horizon. Moreover, China signed a 25-year strategic partnership with Iran in 2021, agreeing to invest in Iranian infrastructure in exchange for access to oil. The war seems unlikely to make economic life any simpler.

"Emerging markets overall have been impacted to a greater extent by recent market volatility than developed market peers," explains Director of Investment Strategy, Brad Holland. "This serves to reinforce the point that investors need to understand the many nuances between emerging market economies. From factors such as liquidity conditions and market volatility, to whether global economic conditions favour commodity producers or export-based emerging economies, the impacts of the hostilities are likely to differ widely."

Bonds – What is the mood in debt markets?

The investment team largely expected bonds to play their traditional role in 2026: to provide steady income and to add to portfolio stability. Having endured an extended period in which bonds didn’t do this very well, things had at last begun to "return to normal".

However, the investment team has been keeping bond holdings lower than our long-term benchmark, for two reasons.

The first is simple preference for other asset classes. The team has used some of the capital that could be allocated to bonds, to hold more equities and gold.

The second reason is that bonds are more sensitive to a couple of factors than equities are.

One is borrowing costs. If investors feel governments are spending too much, or unwisely, they may demand more in return for lending their money (buying government bonds). This can push bond prices down, increasing borrowing costs.

Going into 2026, we felt that certain policy decisions from the US and UK may mean borrowing costs creep up, so were cautious about holding too many US or UK government bonds. This remains the case.

More pertinent to the current situation, bonds can also be very sensitive to inflation. Because inflation erodes the value of future cash, and bonds often pay regular income (ie. ‘cash flows’), higher inflation can reduce the present value of the future income, and therefore a bond’s value.

The war in Iran has caused energy prices to rise (and fall) dramatically, and because some investors expect this to feed through into higher inflation, government bond prices fell as the war began. If the conflict resolves quickly, the impact on inflation may be limited, but we would expect inflationary pressure could build if hostilities are protracted.

In summary – our overall allocation to fixed income remains underweight relative to our long-term benchmark in favour of equities and gold.

Commodities – What has changed in supply and demand?

Oil

As the year began, the investment team’s view was that oil supply was expected to outpace moderating demand. As a consequence, the team had lower expectations for oil prices in 2026.

Supply dynamics meant the investment team saw potential for a lower oil price that could help to cool inflation. However, we had built no positions directly linked to oil price movements.

The war in Iran has caused sharp moves in oil prices.

If oil supply is throttled by a sustained conflict in the Middle East – especially a conflict which sees energy infrastructure targeted – this could lead oil prices to stay higher for longer, which could feed into global inflation that takes time to dissipate.

Gold

As mentioned above, we have a portfolio position in gold – which we increased in managed portfolios early in February – which can increase portfolio resilience.

As explained going into 2026 by Portfolio Manager, Bola Onifade, "It is also our expectation that the occurrence of further events that erode broad investor confidence will be an aid to gold."

We continue to believe gold represents a versatile ‘hedge’ against – or reduce the effect of – market volatility caused by a variety of developments that may dent investor confidence.

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Politics – Will government spending speed up or slow down?

In the Investment Outlook 2026, the investment team identified a trend across the western governments of introducing more risk to fiscal stability than necessary. We’ve touched on this above, in our view on government bonds in the UK and US. However, the governments of the major European economies of Germany and France have also given us reason to err on the side of caution.

Scott Gardner explains that it boils down to these governments requiring certain outcomes to fall in their favour, such as adequate economic growth, or retaining sufficient political sway, to restore investor confidence.

"These governments have left themselves little leeway to pivot should events spiral. The lower tax receipts associated with a dampening of economic activity may force the government either into issuing more bonds, putting upward pressure on interest rates and bonds yields, or cutting spending, which could slow economic activity even more."

Market valuations and risks to investor optimism

At the start of 2026 we highlighted that equity markets were looking relatively expensive, but that from a fundamental perspective, this is largely justified. However, as explained at the time by our Head of Portfolio Management, Pacome Breton, expensive markets can mean negative surprises are less likely to be shrugged off. This is what he said in the Outlook.

"Market valuations are poor predictors of short-term performance. Unpredictable shocks – such as the COVID-19 pandemic, the war in Ukraine, or distress at a major financial institution – cannot be anticipated and tend to have a greater impact when market valuations are elevated rather than undervalued."

In light of recent events, Pacome explains now is not the moment, in a rapidly shifting scenario, to alter our stance on risk.

"Things could quickly improve, with a conflict resolution or de-escalation, in which case lowering portfolio exposure particularly to equity risk would be the wrong move. And while we are monitoring markets closely, and will take advantage if we believe we can find opportunities to buy at compelling levels, the war could draw out longer than either side anticipates."

Wealth perspective – When the world looks uncertain, stick to your plan

It can be tempting to consider short-term adjustments when markets are jostled by a new development.

A golden rule when managing your wealth is to stick to your plans unless your personal circumstances change.

Investing is an important part of wealth planning, and we would always recommend our clients take a long-term view when committing savings to markets. Although it can rise and fall, market volatility is normal, and markets are always rising and falling.

Christopher Liebetrau is a Senior Wealth Manager and Financial Planner in our wealth team. When he speaks with clients concerned about market volatility, he encourages them to remember that financial stability is about reaching your milestones, not the bumps in the road.

"We spoke to a lot of concerned clients when the US tariff policy changes caused market turbulence in early 2025, but it was a strong year for global equities overall. Many investors that stuck to their plans will have made important strides towards their longer-term goals.

"For most people, a solid wealth plan will have a number of goals that they’re building towards. Some might be five years away, others ten, some even more. Your investments are there to work steadily to get you closer to those goals, and although it can be unsettling to see portfolio values fall in the short-term, your investment horizon is likely to have been set further into the future for exactly this reason.

"Please also remember that if you’re worried, or have an approaching milestone, you are welcome to call and speak to us.

"Our team of experts are here to help. If for any reason adjustments are needed, we can help guide you to make sure they’re right for you."