Geopolitics dominated the quarter, as Venezuela, Greenland-related tariff tensions, and the Iran conflict disrupted trade routes, triggered an oil shock, and revived stagflation concerns globally.
The US economy remained broadly resilient, though growth slowed, labour markets softened at the margin, inflation stayed above target, and the policy mix became increasingly politicised.
Europe improved modestly from a lower base, supported by easing inflation, recovering PMIs and tighter peripheral spreads, before the Iran-driven energy shock revived stagflation concerns.
China and Asia showed mixed but stable growth, with China near 5%, supported by exports and policy easing, despite weak demand and Hormuz-related energy risks.
Markets were initially supported by resilient growth and improving earnings breadth, but rising oil prices, AI-led disruption and geopolitical escalation increased dispersion across sectors, styles and regions.
Conclusion: While a severe recession remains unlikely, volatility has risen meaningfully and tail risks are no longer negligible. We have reduced market exposure, emphasising on capital preservation. Within credit, selectivity and diversification remain essential. We continue to favour shorter-duration investment grade and high yield bonds as well as senior secured loans. In equities, we favour active rotation over broad beta. In this volatile environment, capital preservation remains paramount, while retaining flexibility to add equities and longer-duration bonds at more attractive levels if market weakness deepens.
Full Quarterly Investment Letter Q2-2026
