“Diversification and selectivity could help navigate a period of increasing scrutiny over policymakers’ credibility and the sustainability of earnings in the AI ecosystem”
Iran conflict: Diversification at play
- In the six months since the start of the Iran war, global growth has remained resilient, while inflation has stayed above target.
- Equities rose on earnings and AI optimism, while bonds suffered on fears of fiscal slippage and higher supply.
- A European diversified portfolio delivered strong returns, offsetting bond weakness and benefiting from the equity rally.
Six months after the conflict in the Middle East began, the macroeconomic backdrop has proved more resilient than expected, particularly in the Eurozone where we are seeing stronger Q2 data and improving leading indicators. Inflation is expected to peak at lower levels, but remain above target in major economies with geopolitical tensions and climate patterns still posing risks to energy and food prices. Meanwhile, earnings growth has remained solid, broadening beyond technology and across countries, while yields have risen, amid fiscal and supply concerns, as well as shifting monetary policy expectations.
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