Geopolitical escalation and capital markets – classification from a multi-asset perspective

The escalation of the conflict between Israel and the United States and Iran on March 1, 2026 marks a geopolitical turning point. The military clashes and the confirmed killing of the Iranian head of state and other high-ranking government officials have led the region into a phase of heightened uncertainty. In such a situation, the first priority is to remember the innocent civilian victims of the attacks and to sympathize with their families.

For investors, however, this raises the question of the structural impact on their portfolio. The capital markets initially reacted with increased volatility, rising prices for oil and other fossil fuels and a short-term flight into supposedly safe asset classes such as the US dollar. At the same time, the conflict is changing medium-term expectations, such as potentially higher future inflation due to rising energy costs and higher sea freight costs.

As multi-asset managers, our portfolios benefit in such a situation from broad diversification across asset classes, regions and risk factors. In the current phase of heightened uncertainty, the composition of quality equities, defensive bond components and real assets has a particularly stabilizing effect. Strategic allocations to sustainable infrastructure and renewable energies can further increase the geopolitical resilience of portfolios.

How will the capital market react after the attack on Iran?

The immediate market reaction follows familiar patterns of geopolitical shocks:

• Slight price declines and higher volatility on the stock markets
• Slight increase in risk premiums for corporate bonds
• Rise of the US dollar
• Increase in energy prices
• Rise in the price of gold

Such movements are an expression of short-term risk aversion. However, historical experience shows that geopolitical events rarely trigger lasting structural market distortions, provided they do not lead to a global economic crisis. At the same time, some normally expected reactions failed to materialize this time. For example, there was no flight into government bonds with high credit ratings. On the contrary, risk-free interest rates in Europe and the USA rose. We see this as an expression of rising inflation expectations due to a possible increase in energy prices. It also indicates a welcome level-headedness on the part of market participants, who are taking a differentiated view even in the current situation. The short-term rise in energy prices is being factored into inflation expectations, but the regionally limited nature of the conflict is not being seen as the trigger for a global capital market crisis. We share this assessment.

Stock markets

There was initially no panic reaction on the stock markets. There had already been a risk-off movement on the markets in the previous days in anticipation of a possible attack. American shares did not record any losses, while European stock markets were slightly weaker. This was due on the one hand to the flight to the “safe haven” USA and on the other hand to Europe’s greater energy dependency on supplies from the Middle East.

The differences between individual sectors were more pronounced. Prices rose for companies in the oil & gas industry, which are benefiting from rising oil prices. Utilities, a classic defensive portfolio component, also remained in demand. Defense companies, on the other hand, failed to make gains. We see this as a sign that the capital market considers the world to be a safer place after the fall of the previous Iranian government. The initial losers were companies in the tourism sector, particularly airlines, whose business has been severely restricted by the closure of airspace and higher kerosene prices. Manufacturing companies, whose global supply chains are becoming riskier and more expensive, also experienced a weaker share price performance as a result of the increased uncertainty.

All in all, market volatility increased and investors reacted by cautiously shifting capital into safer markets and more defensive business models. However, the extent of the reaction was very manageable. Investors seem to see the US as the winner of the military strike, underpinning its strong positioning in the world. In the Middle East, despite their differences, many states have moved closer together as they strive for stability in the region.

The medium-term economic consequences for companies are largely dependent on the length and outcome of the conflict. We expect the acute conflict in the Middle East to be much shorter than Russia’s war against Ukraine. We therefore expect only a minor impact on the business prospects of most global companies.

Bond markets

The reaction of the bond markets has also been moderate so far. What is striking is that – in contrast to previous crises – yields on government bonds have not initially fallen, but rather risen. While yields were still falling last week, German and US government bonds are currently trading at higher yields. This indicates that the market is currently giving greater weight to the risk of higher energy prices and thus a higher inflation risk than the traditional search for safety. As the yields of the European peripheral countries are moving in step with those of the core countries, no additional geopolitical risk premium is discernible. There are therefore no signs of a panic reaction.

Corporate bonds with good credit ratings were slightly weaker. Measured in terms of the pure credit risk premium, however, the widening was very slight. It remained well below the reaction to the Israeli surprise attack on Iran in June 2025 and was much lower than after the US president’s tariff announcement in April 2025. Even corporate bonds from emerging markets reacted only slightly to the current conflict. Overall, we therefore do not see a flight to safe havens at any price, but a market environment that prudently weighs up and assesses inflation and geopolitical risks. Our portfolios are designed to cushion such phases with quality, diversification and sufficient liquidity. Adjustments are made selectively and prudently if necessary.

Commodities

As expected, the energy markets are reacting sensitively to the developments. Particular attention is being paid to the supply routes through the Strait of Hormuz, through which around 20% of the oil traded worldwide is transported every day. Despite this critical importance, we do not foresee an immediate oil price shock in the short term. The reasons for this are that Iran itself only contributes around five percent to the global oil supply and that the current global overproduction and well-filled strategic reserves will cushion the initial pressure.

The real danger for the markets lies in a possible escalation and prolongation of the conflict. If the situation comes to a head and free shipping is permanently impaired, this could lead to a noticeable supply shortage in the medium term. Such a scenario could not only increase the oil price, but also trigger a new surge in inflation, which would limit the central banks’ options for action. A quick solution, on the other hand, could lead to an easing of international sanctions on Iran and increase the supply of oil in the medium term. We are constantly monitoring developments in order to proactively manage the impact on portfolios.

In an environment characterized by geopolitical uncertainty and fragile correlations between traditional asset classes, gold confirms its role as a stabilizing portfolio component. We see it as a valuable structural hedge against political shocks, unexpected rises in inflation and the associated loss of confidence in the markets. Its capacity as a diversifier is particularly valuable now, as the traditionally protective effect of government bonds can diminish during periods of inflation. Our strategic allocations to gold are therefore a key component in strengthening the resilience of diversified portfolios.

Infrastructure / Real Assets

The current conflict once again highlights the risk of structural dependence on imports of fossil fuels. This risk is particularly great for Europe, as our energy needs cannot be met from our own oil and gas production. The initial response after the end of imports from Russia was to turn to the oil-producing countries in the Middle East. But even if we are prepared to become dependent on the countries there, the supply routes remain risky. Both land and sea routes lead through countries that are subject to geopolitical volatility.

The answer lies in the private-sector expansion of local energy sources, above all wind and solar energy. However, the necessary grid expansion, storage technologies and research into and financing of new energy sources, such as hydrogen, are also a necessary building block for this. This is the only way Europe can achieve energy policy sovereignty in the long term and become less dependent on geopolitical conflicts in which energy infrastructure is increasingly being used as a political instrument.

Conclusion: discipline instead of actionism

Geopolitical escalations create uncertainty, but they do not change the basic principles of sound investment. Diversification, a focus on quality and active risk management remain crucial. When geopolitical risks materialize, it is more important than ever to analyze the effects, impact paths and possible scenarios on investment decisions, regardless of the hectic pace on the capital markets.

Our portfolios are structured in such a way that they can absorb short-term market distortions without losing sight of long-term return targets. Sustainable transformation processes, particularly in the energy and infrastructure sectors, remain structural trends that persist regardless of short-term geopolitical events.

In times like these, prudence is a competitive advantage more than ever.

Risks of multi-asset funds

• Risks of market-related price fluctuations and earnings risk
• Risk of a decline in unit value due to default/inability to pay on the part of individual issuers or contractual partners
• Exchange rate risk against investor currency possible

Legal information

This is a marketing communication and not an investment strategy recommendation or an investment recommendation pursuant to Section 85 WpHG in conjunction with Article 3 para. 1 no. 34 or no. 35. Article 3 (1) No. 34 or No. 35 of Regulation (EU) No. 596/2014. This communication is directed exclusively at persons who are resident or ordinarily resident in the Federal Republic of Germany. The contents of this document are for information purposes only. It does not constitute investment advice/recommendations, nor an offer or advice to buy/sell a fund. The current sales documents of the fund (basic information sheet, sales prospectus, semi-annual and annual report), which you can obtain free of charge in German on the relevant product page at https://eb-sim.de/uebersicht-investments/, form the sole binding basis for the purchase. Please refer to the sales documents for the opportunities and risks. When making your investment decision, please also take into account all sustainability-related characteristics and objectives of the fund, which you can find on the relevant product page at https://eb-sim.de/uebersicht-investments/.