Trading update : 2 April 2026

The conflict in the Middle East continues to affect everything, from economic and company growth to global supply chains, input costs and investor confidence. The net effect is rising headwinds, shifting investor focus to defensive plays and risk-off trades – fleeing emerging markets and hunkering down in safe-haven assets – while policy makers take a wait-and-see approach. But within this dislocation, opportunities still exist, with coal and China two potential beneficiaries from the turmoil.  

Buy the dip

Against the gloomy global economic backdrop resulting from the conflict in the Middle East, equity markets have pulled back significantly. March marked the third worst pullback in 13 years for the S&P 500 (VOO-NASQ). However, rather than divest, now might be the time to buy, as the index has become less expensive and is now priced reasonably compared to the actual profits companies are generating. Previously, stocks were overpriced (high P/E) relative to their profits, but that gap has closed, bringing the valuation back to its typical historical average. This bodes well for investors who believe the market is in for a period of massive, AI-fuelled productivity gains.

The stagflation trade

As the war in the Middle East escalates further, markets have started to go into defensive mode. War is typically inflationary, which is especially worrying for the US economy, which has a debt-to-GDP ratio that is already beyond acceptable levels. The roughly $2 trillion US budget deficit is growing, and $10 trillion of US government debt will have to be refinanced over the next 12 months. In this scenario, the risk of stagflation is rising, which brings the stagflation trade – going long gold, consumer staples, pharma, utilities and, in this case, energy – into play. Growth stocks, like tech, are selling off, and financials will remain under pressure.

War games

The Wall Street Journal reported that President Trump told aides he’s willing to end the U.S. military campaign against Iran even if the Strait of Hormuz remains largely closed. This move would likely firm Tehran’s grip on the waterway and leave a complex operation to reopen it later on. After assessing that a mission to open the chokepoint would push the conflict beyond four to six weeks, the Trump administration decided that the U.S. should achieve its main goals of hobbling Iran’s navy and its missile stocks and wind down current hostilities while pressuring Tehran diplomatically to resume the free flow of trade. If that fails, Washington will press allies in Europe and the Gulf to take the lead on reopening the strait.

Entering the fray

The United Arab Emirates (UAE) is preparing to help the US and other allies open the Strait of Hormuz by force, reports Bloomberg. The move would make it the first Persian Gulf country to become a combatant, after being hit by Iranian attacks. The UAE is lobbying for a United Nations Security Council resolution that would authorise such action. Emirati diplomats have urged the US and military powers in Europe and Asia to form a coalition to open the Strait by force.

Running out of runway

The aviation crisis in Asia is threatening to intensify and spread to Europe and beyond due to energy turmoil caused by the Iran war. Bloomberg reports that the amount of jet fuel lost because of the conflict is ultimately too much for the world’s refiners to offset. Sydney Airport warned that there are no assurances that the country’s largest entry port will receive aviation fuel next month.

Just Do It already!

Nike (NKE-NASQ) provided a gloomy outlook for the year ahead, with revenue expected to decline 2-4% in the current quarter. According to Bloomberg, the company is facing headwinds globally, including elevated inventories in Europe and the Middle East and traffic disruption from the war. Nike’s CEO Elliott Hill said the direction is clear and the foundation is getting stronger, but the company is working to reverse declines in China and with its Converse brand.

The coal comeback

Japan, one of the world’s largest gas importers, plans to expand its use of less-efficient coal power plants, as it tries to diversify its generation capabilities. Bloomberg reports that countries around the world, including Bangladesh and India, are firing up coal plants to shoulder the burden of energy shortfalls elsewhere. Even in Europe, where plenty of dirty power has been phased out, the Netherlands, Poland and the Czech Republic could all see more coal use if gas prices remain high. Germany is considering reactivating mothballed coal-fired plants to curb rising electricity prices.

Hunkering down

Goldman Sachs estimates that only about 6% of China’s total energy consumption is directly exposed to disruptions in the Strait of Hormuz, as the country benefits from a diverse energy mix, multiple suppliers and access to routes that bypass the Gulf. In sum, China could weather a conflict that lasts for several more months, while greater protection from global energy prices will make its exporters more competitive.

China’s economy humming

China’s factory activity expanded for the first time this year despite higher energy prices and disruptions caused by the escalating conflict in the Middle East, reports Bloomberg. The official manufacturing purchasing managers’ index reached 50.4 in March, versus 49 in February, according to data from the National Bureau of Statistics. The non-manufacturing measure of activity in construction and services unexpectedly grew this month, rising to 50.1 from 49.5 in February.

Fleeing EMs 

Investors ranging from short-term traders to some BlackRock Inc. (BLK-NASQ) model portfolios are trimming exposure to emerging market assets as oil volatility grips global markets. Risk sentiment has soured over the escalating conflict in the Middle East, sending safe-haven assets like the dollar higher as oil rises above $110 per barrel. Traders are now cutting their exposure to exchange-traded funds (ETFs) that invest in emerging market equities and bonds at the fastest pace in years.

Taking a wait-and-see approach

The SARB’s Monetary Policy Committee (MPC) unanimously decided to hold the policy rate at 6.75%, in line with market expectations. The decision reflects a cautious, wait-and-see approach, broadly consistent with the stance adopted by G4 central banks in recent meetings. While the rate-cutting cycle has been pushed out, inflation is still expected to converge towards the 3.0% target over time, albeit later than previously anticipated.