The main points of the allocation meeting
- The United States has extended the Iran war ceasefire, but negotiations remain stalled. Deep mutual distrust continues to impede negotiations. U.S. president Donald Trump has not honored previous agreements with Iran, which has significantly decreased his trustworthiness in Iran’s eyes. Another challenge is the possible internal division within Iran between hardliners and more moderate factions, which may have manifested for instance in the opening and closing of the Straits. Iran has also made conflicting public statements. The conflict has nevertheless de-escalated with both sides opting not to recommence hostilities despite bluster. The strait remains closed as it serves as a source of leverage for both sides in the negotiations. Despite de-escalation, we recognize that the risk of a prolonged or escalating conflict remains significant, and we continue to monitor the situation closely.
- The first-quarter earnings season has started off strong especially in the U.S and in emerging markets. Major banks kicked off the reporting season last week with solid results, posting earnings growth of around 15 percent. In both the U.S. and emerging markets, technology companies are driving earnings growth, while in Europe the strongest growth is seen in the energy sector. In the United States, first-quarter earnings are expected to grow by 13 percent year-over-year, whereas in Europe growth is projected to remain around three percent. In emerging markets, earnings growth for 2026 is expected to exceed 40 percent, largely due to three semiconductor companies: SK Hynix, Samsung Electronics, and TSMC.
- Equity markets have largely recovered to pre-war levels, while bond yields have not. The MSCI AC World Index declined by nearly ten percent due to the war in Iran, but equities have since regained most of those losses. Bond yields, however, have not returned to their initial levels, reflecting a more cautious view. The U.S. 10-year government bond yield was around 4.00 percent at the start of the war, rose to nearly 4.45 percent at the end of March, and has since declined to around 4.30 percent. Brent crude oil has remained below 100 dollars per barrel, after reaching nearly 120 dollars in March.
- We overweight equities and underweight money markets. Within equities, we overweight EM equities and remain neutral elsewhere. Within equity themes, we emphasize European industrials. In fixed income investments, we overweight high yield corporate bonds and underweight government bonds and remain neutral on emerging market bonds and investment grade corporate bonds.
