Markets Confront Geopolitical Risk

Markets declined in March as US strikes against Iran, first launched as February concluded, widened into a broader conflict and sparked concerns about the duration of downstream impacts on energy prices and broad inflation. As measured by the MSCI ACWI ex-USA Index, the market fell nearly -11%, taking year-to-date returns into modestly negative territory.

Headlines were understandably dominated by the conflict’s implications across global markets and economies — from commodity prices and oil supply to fertilizer and agricultural prices and global bond rates. Since the conflict began, shipping through the Strait of Hormuz has been limited, with Iran blocking most traffic. President Trump has employed a range of tactics to reopen the strait and secure shipping — from publicly threatening Iran with further strikes to attempting to enlist the help of allies, both individual and collective, including NATO, the UN, the UK, France and others. As we write, the deadlock continues, with little hint as to how the situation will unwind.

A major effect of the strait’s closure has been rising oil prices: Over the course of March, global Brent crude prices rose from just over $70 per barrel to nearly $120. As a major input to a vast array of goods, as well as a critical component of trucking and shipping, rising oil prices could quickly translate into higher prices broadly — and indeed, euro zone inflation has already risen from 1.9% in February to 2.5% in March. US inflation held steady at 2.4% but is expected to increase in future readings as higher energy prices begin biting. The UK’s most recent reading was also unchanged at 3% but is likewise expected to climb.

Given the intense focus on inflation, it is hardly surprising investors paid close attention to central banks during the month. To date, major global central banks have held rates — including the European Central Bank, Bank of England and Federal Reserve. The Bank of Japan paused its nascent hiking cycle, citing the ongoing Middle East war and higher energy prices, but maintained its hawkish tone. The Reserve Bank of Australia stood alone (at least for now) among developed market central banks in raising rates, increasing them by 25 basis points to 4.1%. However, barring a near-term reversal in oil prices and broader inflation, it seems reasonable to anticipate others may join Australia in the months ahead.

Elsewhere, fallout from the US Supreme Court’s ruling striking down the majority of President Trump’s tariff regime continued, with the administration seeking new means whereby to impose tariffs on trade partners. During the month, the US announced new trade investigations into the UK, EU and Canada focusing on whether the countries have sufficiently robust rules against importing goods made with forced labor. Simultaneously, the US is investigating whether the EU, Japan, Taiwan, Switzerland, Korea and others have excess capacity and production in manufacturing sectors and has announced its intention to investigate additional areas including digital services and drug pricing. This tactical shift is ostensibly intended to create grounds upon which President Trump could impose new tariffs before his across-the-board 10% levy expires. The US also announced investigations into China’s exports, prompting reciprocal actions ahead of President Trump and President Xi’s May summit in Beijing.

However, there were also signs of positive trade progress during the month, with the EU and Australia reaching a trade and security deal eight years in the making. The agreement will give Europe greater access to Australia’s critical minerals while conversely allowing Australian companies access to Europe’s rearmament program. Korea also approved a $350 billion investment plan as part of its previously agreed trade deal with the US — a decision made following its inclusion on the US list of countries under investigation for excess production. And following a delay in the wake of President Trump’s Greenland comments, the EU officially approved its trade deal with the US, which will eliminate European tariffs on American industrial goods and some agricultural products while reducing the US tariff rate on most European goods to 15%. The agreement also includes conditions which, if not met, could reverse the deal, as well as a sunset clause in 2028 requiring renewal.

On the economic front, the effects of the Middle East war have yet to be fully felt. US GDP was revised down in Q4 to 0.7% — rather anemic growth. In China, factory output and retail sales jumped more than expected early in the year, and exports surged significantly in the first two months — though imports grew alongside them. However, China’s government also cut its growth target, citing ongoing geopolitical tensions as well as trade dislocations. Data will show in time the magnitude of the impact of both hot war and trade war on global economies.

Regionally, Asia and Pacific markets led declines, falling -13%. Japan (-12%) and Korea (-25%) were the largest headwinds in the index, though Taiwan (-13%), China (-8%) and India (-15%) also weighed on returns. Europe (-10%) also declined meaningfully in the month, led down by Switzerland (-12%), France (-11%), Germany (-12%) and the UK (-8%). Notably, Norway was the sole European country in the black (+9%), likely benefiting from its significant oil industry as supply from the Middle East remains constrained and prices continue rising.

North American markets fell -6%, driven by a -21% decline in the US. The Middle East also declined -9%, while South Africa (-19%) and the United Arab Emirates (-16%) were notable detractors. Latin America fell the least regionally, down less than -4%, with Mexico weighing most on the region’s performance, down -8%.

Exhibit 1 –MarchReturns forMajor Markets (USD)

Source: FactSet, as of 31 March 2026.

At the sector level, energy was the sole positive performer, up over +10% — hardly surprising. Conversely, the largest negative contributors were information technology (-16%), financials (-9%) and industrials (-13%). Materials (-14%) also weighed on the index’s return. Utilities declined least, falling less than -5%.

We noted last month that, if anything, the pace of headlines in 2026 seemed unlikely to slow. A month later, that seems to have largely held — and shows little sign of changing in the near term. In such environments, we believe investors are best served by an investment philosophy not based on timing markets or precisely predicting the way forward or identifying near-term winners and losers. Rather, investors benefit from an approach focused on identifying high-quality companies trading at compelling valuations that are well positioned to perform over a longer-term horizon — well beyond the shelf life of day-to-day headlines, however volatile.