9 March 2026
Geopolitical uncertainty crystallised into market volatility last week. Historically, oil prices are the usual channel for how geopolitical risk impacts the economy and investment markets. This makes the trajectory of oil prices crucial and the key macro variable to watch. There are two possible scenarios:
First, the oil price shock is transitory as geopolitical risk abates, supported by still-high global supply. This is disruptive, but should leave the base case on track. Growth can be sustained by supportive policies, strong (and broadening) profits, and the AI capex boom. New inflation pressures might make prices stickier for longer, but still manageable. For markets, a short-term volatility spike would eventually give way to this year’s theme of “the great rotation”; that would benefit value, non-tech sectors, and emerging markets.
Alternatively, a longer-lasting oil price spike could present a challenge to the investment outlook. A persistent shock of more than USD20, or oil above USD100 – as we last saw in 2022 – would be more disruptive to growth, which could hamper profits, and potentially undermine stock market multiples. With some parts of global markets, particularly in the US, now “priced for perfection”, any adverse news could challenge performance. However, valuation gaps in emerging markets and developed market ex-US stocks, create some cushion against negative macro shocks.
If history is any guide, geopolitical stress in markets will be short-lived. It means a bumpier path for investors, but staying invested for the long run still makes sense.
Recent events in the Middle East have put traditional portfolio shock absorbers to the test. US Treasuries – which worked as a portfolio diversifier in February – have now sold off. This highlights a key challenge: bonds typically fail to protect when inflation is the main driver of risk aversion. It’s a mini-repeat of the nightmare 2022 playbook – when stocks and bonds fell in tandem. Meanwhile, gold rallied at the start of last week, and then subsequently fell back.
So, what has worked? The US dollar. This makes sense if higher inflation forces a hawkish Fed, and it reflects US energy independence. Meanwhile, other haven currencies – like the yen or Swiss franc – have been hobbled by Japan and Europe’s dependence on energy imports.
Interestingly, while EM local currency bonds moved lower along with their developed-market counterparts, in FX-hedged terms they haven’t materially underperformed Treasuries, demonstrating increased EM resilience.
For investors searching for dependable diversifiers, the main takeaway is that no single hedge is consistently reliable across market regimes and economic shocks. The implication is clear: resilience likely comes not from relying on a single safe asset, but from “diversifying the diversifiers”.
The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. Past performance does not predict future returns. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Source: HSBC Asset Management, Bloomberg, Macrobond. Data as at 7.30am UK time 06 March 2026.
Sometimes the chart tells the story. The Geopolitical Risk Index (GPR) – a barometer of market uncertainty that scours the world’s press for signs of international tension – is at its highest since early 2022, the start of the Ukraine crisis. That follows the recent spike in the policy uncertainty index, driven by tariff developments and Fed headlines.
But how does it show up in markets? Stock market volatility – as represented by the VIX index – has hit its highest level since last November’s tech-related wobble. Risk-off sentiment in global stocks has been centred on parts of Europe and Asia, where energy dependency is relatively high. And in terms of sectors, energy has been the obvious winner, while bond-proxy sectors such as consumer staples and utilities have underperformed amid higher bond yields.
Stepping back from short-term trends, the chart shows how geopolitical risk has been trending higher in recent years. It’s a complex geo-economic world. For investors, the best defence is a well-diversified portfolio across assets, geographies, and sectors.
In terms of oil price shocks, the size, speed, and persistence of the price move will determine the implications for the growth-inflation mix, profits, and investor sentiment. But they also impact countries differently.
So, what could a persistent USD10 shock do? Modelling shows that the growth and inflation impact on developed economies would be largely uniform. But in emerging markets, it’s more variable. Growth in Asian oil importers, particularly ASEAN and South Korea, would be more vulnerable to disruption. And inflation in India and Thailand could see more upward pressure than most.
But as we’ve seen last week, the read-across for markets isn’t linear. Sharp initial drawdowns in South Korea have partly reversed because of competing factors, including possible dip-buying by retail investors. Some of South Korea’s stocks are pivotal in the global AI supply chain, and its relative value and ongoing market reforms are keeping investors engaged. It’s a reminder that while oil shocks are a risk, global themes like the AI cycle, and strong structural stories in emerging markets, remain powerful market drivers.
The blistering pace of expansion in AI and data centres is driving up global demand for electricity. That means investment in power infrastructure is surging.
It’s estimated – after accounting for regional variations – that AI could represent about 10% of the world’s future electricity demand growth. In the US alone, annual capex to support AI-related power infrastructure is projected at USD30 billion over the next five years. That means credit markets are bracing for a lot more debt issuance from utilities, independent power producers, and energy infrastructure firms.
This rise in credit demand could result in a widening of spreads in some AI-related energy infrastructure sectors – as it has done recently in the technology sector. Nonetheless, some fixed income investment specialists believe that the AI-driven power boom is creating differentiated credit opportunities. And for investors, active credit selection – focusing on utilities and infrastructure players with robust regulatory frameworks and exposure to AI-linked growth – will be key to capturing value as the cycle accelerates.
Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. Costs may vary with fluctuations in the exchange rate. Source: HSBC Asset Management. Macrobond, Bloomberg, Oxford Economics. Data as at 7.30am UK time 06 March 2026.
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Source: HSBC Asset Management. Data as at 7.30am UK time 06 March 2026. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector or security. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way.
Equity markets saw substantial volatility in response to heightened tensions in the Middle East and a surge in oil prices. The US dollar strengthened against major peers, while gold – which initially strengthened on the turmoil – traded lower for the week. Emerging markets saw widespread weakness, with EM Asia and Latin American benchmarks down across the board. The Kospi, one of the best-performing global indices year-to-date, saw heavy sell-offs, with some ASEAN markets also posting marked losses. European shares followed suit, with the Euro Stoxx 50 and FTSE 100 declining. In Japan, the Nikkei 225 fell despite a weaker yen. In the US, the tech-heavy Nasdaq was stable after recent weakness, with small-cap stocks underperforming large caps. Rising concerns over inflation pushed up sovereign yields, including US Treasuries, UK Gilts, and German Bunds.
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