Investment Insights
Market update: Geopolitical developments and PruFund positioning
Last Updated: 3 Mar 26 5 min read
Recent market movements have created uncertainty for investors following a significant escalation in geopolitical tensions in the Middle East. Over the weekend, the US and Israel launched a full-scale strike on Iran, targeting leadership figures, nuclear facilities, ballistic-missile sites and wider military infrastructure. Iran has retaliated with missile strikes against Israel and US bases in the Gulf, alongside reports of attempted attacks on US naval assets.
While the situation remains fluid and is unsettling, geopolitical shocks of this type are not new, and markets have historically absorbed similar events with volatility typically fading as the situation becomes clearer.
Market reaction to recent events
The latest developments have contributed to a sharp-but measured-market reaction. Oil initially rose around 13%, briefly touching USD 81 per barrel before settling nearer USD 79. Japanese equities fell close to 2.8% at the open but later recovered to around 1.2%. US Treasury yields have been broadly stable, with mild curve steeping, and the US dollar strengthened around 0.5%.
The most immediate concern has been disruption to traffic through the Strait of Hormuz – a vital route that normally carries ~30% of global seaborne oil and ~20% of LNG flows. Over 150 tankers have reportedly halted or diverted following warnings from Iran’s revolutionary Guard, raising energy prices even though Iran has not directly targeted oil-production facilities.
Analysts note that China – one of the largest buyers of crude from the region – may play a role in influencing Iran’s decisions, with around 80% of crude and LNG volumes transiting Hormuz destined for Asian buyers.
Aside of energy, freight and insurance costs may rise temporarily. Although developed market inflation baskets have a stronger focus on domestic services and products, they still rely on imported goods. Therefore, central banks such as the ECB and Bank of England may pause or reassess rate cut plans if the impact on inflation proves more persistent.
What this means for PruFund?
Our broad global diversification means different asset classes have reacted in varied ways to current market conditions. Equity positions have seen-short term pressure, which is consistent with historical market behaviour in periods of geopolitical stress. In contrast, our diversified allocations – including exposure to private markets, real assets and selected credit – continue to add resilience across the portfolios.
PruFund’s long-established smoothing mechanism remains a key strength and is operating as intended. By dampening the effect of sharp market movements, it helps protect investors from short-term volatility while staying aligned with long-term expected returns.
We have a long history of navigating geopolitical events – from the 2011 Arab Spring to more recent episodes, demonstrating that short-term volatility typically does not derail long-term outcomes for well-diversified, multi-asset portfolios.
Our investment approach and outlook
We have not made any changes to fund positioning as a direct result of the conflict. Our strategy remains focused on diversification, disciplined risk management and maintaining a long-term perspective.
While oil markets remain sensitive in the near term, the overall market reaction has been measured. Historical patterns show that risk assets often recover within weeks following comparable shocks unless conflict widens materially. Bond markets have seen modest safe-haven flows, while currency moves remain within normal historical ranges for this type of event.
Past performance isn’t a guide to future performance.
Our investment team continue to monitor:
- Duration and scope of US/Israel operations
- Implications for global oil supply and LNG supply chains
- Inflation dynamics and expectations for monetary policy
- Any signs of broader regional escalation or the conflict becoming more protracted
Scenario analysis indicates that even a temporary spike towards USD 100/bbl, would likely have a manageable, though meaningful impact on global growth and inflation, with effects expected to be temporary. More moderate outcomes would imply smaller, short-lived macroeconomic effects.
Overall, we believe PruFund portfolios remain resilient, well-diversified and appropriately positioned to navigate this period of heightened uncertainty.
Please note that the value of an investment can go down as well up and your client may get back less than they have originally invested.
We know many of you will be having challenging conversations with clients today. If you need further guidance, supporting materials or deeper analysis, please reach out to your usual PruFund account manager.