March saw a sharp escalation of Middle East tensions, leading to one of the most severe monthly corrections since 2022.
The effective disruption of energy supply routes led to a surge in oil prices, reigniting inflation concerns and reducing visibility on growth, monetary policy and asset allocation.
As a result, traditional diversification mechanisms weakened, with both equities and bonds declining and safe-haven behaviour becoming more selective.
Strong corrections in the equity market
Global equity markets corrected significantly. US equities declined by close to -5% over the month, with the S&P 500 down -4.9%, marking its weakest monthly performance since September 2022.
European equities, more exposed to imported energy, recorded deeper losses of around -8% to -11%, while emerging markets fell by more than -13%, reflecting both energy dependence and capital outflows. Energy stocks were the only segment to post gains, rising by more than 10%.
Fixed income also had repricings
Fixed-income markets did not provide protection. Government bonds sold off sharply as investors reassessed inflation risks and pushed back expectations of rate cuts.
US Treasury yields increased across the curve, resulting in negative returns for sovereign bonds globally. Credit markets also weakened, with spreads widening modestly amid concerns over refinancing conditions and vulnerabilities in private credit.
Rise of oil, fall of gold
Commodity markets showed strong divergence. Oil prices surged, with Brent crude rising by more than 60% in March and trading above USD 100 per barrel, reflecting expectations of prolonged disruption through the Strait of Hormuz.
In contrast, gold declined by around -10%, as higher real yields, a stronger dollar and weaker emerging-market demand weighed on the metal despite elevated geopolitical risk.
During hellfire, money in safe havens
In foreign exchange markets, investors favoured selective safe havens. The US dollar strengthened by close to +3% against the euro, supported by its reserve status and relative energy independence.
The Swiss franc continued to appreciate despite the SNB's verbal intervention, increasing pressure on exporters.
Conversely, the Japanese yen weakened, reflecting Japan’s exposure to higher energy prices and inflation risks.
Caution among inflation risks
March highlighted a regime where inflation concerns outweighed traditional risk-off dynamics, and caution remains warranted.
Preserving diversification and selectively increasing exposure to assets that benefit from higher energy prices and greater financial resilience remain essential. See our asset allocation strategy considering the scenarios below:
