Crude oil prices have emerged as the clearest indicator of this uncertainty, with Brent climbing back above $104 per barrel. The sharp move highlights persistent concerns around supply disruptions, particularly given the strategic importance of the Strait of Hormuz and recent attacks on energy infrastructure. Mowat observed that while the world has ample oil and natural gas supplies, logistical and geopolitical constraints have effectively trapped these resources. He believes that once the conflict eventually subsides, global markets could be flooded with energy supplies, potentially pushing Brent prices below $60 in a short span. For now, however, the market remains highly reactive, with traders navigating short-term momentum and hedging strategies, fully aware that sentiment could shift dramatically with any new development.For India, the situation presents a complex mix of risks and opportunities. While a sustained decline in oil prices would typically support macroeconomic stability and attract foreign capital, structural concerns continue to weigh on investor sentiment. Mowat pointed out that uncertainty surrounding the impact of artificial intelligence on the IT sector remains a key overhang, especially given the sector’s significant weight in Indian indices. This has contributed to the relative underperformance of Indian markets compared to peers such as South Korea and Taiwan, where semiconductor-driven growth has taken center stage. Additionally, the weakness in the Indian rupee has added another layer of concern, as rising energy import costs strain the country’s balance of payments despite relative insulation in the domestic energy sector.
Developments in global bond markets are also adding to the complexity. A significant shift in expectations around US monetary policy has been observed, with markets now contemplating the possibility of rate hikes instead of cuts. Mowat highlighted that if such a scenario materialises, US 10-year bond yields could move above 4.5% or even higher. He views this as part of a broader, multi-year realignment of global financial markets following the prolonged period of near-zero interest rates after the Global Financial Crisis. This transition, he suggested, represents a structural reset rather than a temporary fluctuation.
On the geopolitical front, Mowat expressed scepticism about the likelihood of a complete pullback in US policy toward Iran. He indicated that such a move would be difficult to position as a strategic success, particularly given Iran’s growing influence and its demonstrated ability to disrupt global trade routes using relatively low-cost means. The possibility that Iran could exert greater control over key shipping lanes, including the Strait of Hormuz, remains a significant concern for global markets.
Despite the prevailing uncertainty, certain sectors are beginning to show signs of opportunity. Financial stocks, both globally and in India, have undergone a sharp correction, driven largely by concerns around rising credit costs. However, Mowat believes these fears may be overstated and sees value emerging in the sector, especially if geopolitical tensions begin to ease. He noted that major European financial institutions have already seen significant declines from their peak levels, suggesting that a large portion of the risk may already be priced in.Looking ahead, equities are likely to remain the preferred asset class over the next few months, provided there is some easing of geopolitical tensions. Mowat does not see a particularly strong case for precious metals in the current environment and expects bond yields to continue trending higher. He emphasised that global economies have demonstrated remarkable resilience in recent years, having weathered multiple shocks including the pandemic, the Ukraine conflict, and an inflation surge. In this context, the current market environment does not exhibit the same level of structural imbalance that led to the sharp corrections seen in 2022.
A potential de-escalation in the Gulf region, coupled with the resumption of smoother energy flows through critical shipping routes, could pave the way for a meaningful recovery in equities. Mowat pointed out that similar rebounds have occurred in the past, including the strong recovery following last year’s sell-off triggered by geopolitical developments.
From a sectoral perspective, investors are increasingly gravitating toward areas with clear demand visibility. Semiconductors remain a key focus, driven by persistent supply shortages and their central role in the AI ecosystem. Financials also appear attractive at current levels, particularly in a scenario where macroeconomic stability improves. However, the uncertainty surrounding the long-term impact of AI on software businesses continues to weigh on sentiment, especially in markets like India.
In the near term, markets are likely to remain highly sensitive to geopolitical headlines, with oil prices, bond yields, and currency movements acting as key indicators. Until there is greater clarity on the trajectory of the conflict and its broader economic implications, volatility is expected to remain the defining feature of global markets.