February Market Review
Investors continued to rotate away from mega-cap US technology names in February, boosting value sectors, and in particular those that stand to benefit from ongoing AI capex, such as manufacturers in Asia and raw material exporters in Latin America. Similar to periods of the beginning of last year, Emerging markets outperformed developed markets.
Economic activity remains healthy in developed markets, but, concerns have continued to rise about risks of future AI driven unemployment. The software sector was the most affected in February, as investors worried about moats around the “software as a service” business model. Wealth management also came under pressure, and this, combined with concerns about the software exposure of publicly listed private credit managers, weighed on the broader financials sector.
Markets reacted positively to the snap election victory of Japanese prime minister Sanae Takaichi, which delivered the first two-thirds supermajority since the Second World War. As investors factored in the increased likelihood of further fiscal stimulus, the Topix was the strongest performing regional market in February.
UK equities also delivered positive returns in February, driven by large-cap UK stocks and their favourable sector mix that benefitted from both the AI rotation and concerns about rising oil prices. Look for this to only be exacerbated with the ongoing Iran conflict. Gilt yields fell by 25 bps over the month, and this fall combined with their high starting yield meant the UK was the top performing sovereign bond market through the month.
Overall, February was a good month for investors, with most asset classes delivering positive returns. Economic and market data both point to a continued broadening in growth of portfolio values and diversified investors will have reap the benefits. Remain broadly diversified to take advantage of the growth-to-value rotation we've seen since the back half of 2025.
Iran Conflict: How Will It Affect Investments?
Investors are bracing for more volatility in global energy markets as developments unfold in the Middle East. While markets saw sharp initial moves, the volatility so far has been largely as expected.
Global oil prices on Monday traded at their highest level in over eight months. Brent crude, the international benchmark, surged 6.7%, up to its highest level since June 2025. Diesel prices surged to start the week, outpacing the gains in oil prices and hitting their highest level in over two years. Europe gasoil futures also surged and US diesel futures surged 12%, their biggest single-day jump since 2022. Natural Gas futures surged by 38% in Europe, also posting their biggest single-day gain since 2022.
Global markets are widely expecting the conflict to be relatively short, though tumultuous. Stocks historically tend to shrug off geopolitical concerns only to rebound shortly after tensions settle. Just how high oil prices rise though, will be critical for determining the impact on stocks. Geography of specific markets will also be highly sensitive, with their dependancies on oil affecting their prices.
The US dollar has strengthened against other major currencies, benefitting from investors seeking out safe havens, erasing its losses for 2026 and trading at its highest level in five weeks. Uncertainty about oil prices and US-Iran tensions could, if prolonged, lead to the Federal Reserve holding interest rates steady for longer, which can also boost the dollar's value.
Shares of airline stocks fell to start the first week of March, as investors and businesses grapple with the uncertainty plaguing the Middle East and major cities’ proximity to the conflict, such as Dubai.
A scenario where oil trades around $80 per barrel, but the conflict is relatively short-lived, will result in limited impacts on the global economy. But, a scenario where oil rises above $100, and the conflict continues for a lengthened period of time will be very different, with much bigger shocks to the global economy.
By mid-week, major stock indexes ended their trading days sharply higher, as investors mostly shrugged off the initial volatility. So far, buyers seem to be swooping in every time volatility picks up. The Strait of Hormuz continues to be a major talking point point around the world, and if shipping lines are majorly disrupted, expect increased and potentially lengthy volatility throughout Asian markets.
As you're aware, this is a highly fluid market, and facts are being updated quickly. As such, further thoughts will be provided in the coming weeks.