Investment Weekly: Markets after the oil shock

16 March 2026

Another week of supply shocks in investment markets. Commodity prices have surged – Brent oil is up around 50% versus February, while European gas prices have doubled. How should investors position now?

First, big oil shocks matter. Historically, large spikes pre-empt recessions. That is not the base case today, but the risks warrant some tactical de-risking in portfolios. Oil prices should fall back through 2026, even as some geopolitical risk premium lingers. This temporary shock is disruptive but not decisive for growth. It means more volatility in markets, and a short interruption to “broadening out”.

Second, this time is different versus previous risk-off episodes. The dollar is up – but to a more limited extent than we would usually expect. Meanwhile, global bonds are down – investors reckon the Fed will back away from cuts, and the ECB might even hike in 2026. And EM stocks and bonds have been much more resilient than usual. That’s impressive and reflects the new reality of improved macro and policy fundamentals.

Third, the regime has changed. This is the fifth supply shock to the macro system in the last five years! Today’s environment of rolling geopolitical events and supply disruptions points to an altered economic regime. One where inflation is more volatile and market correlations changed. This new world requires careful navigation – investors will need to “diversify the diversifiers”, and be more active and selective with growth exposures in portfolios.

Today’s global oil disruptions echo the energy shocks of the 1970s. The 1973 Yom Kippur war and the resulting first OPEC oil embargo stand out as a major event, triggering a two-year bear market. But the modern backdrop is fundamentally different. The US is now energy independent, global economies are less oil intensive, and strategic reserves are robust.

As such, more recent shocks have had a limited impact on markets. The most serious was Russia’s invasion of Ukraine in 2022. That conflict has some similarities with the current crisis, including the size of the oil spike. But even so, the S&P 500 drawdown was limited to around 13%, and the losses were recouped in just 120 trading days.

And crucially, the post-1990s era of inflation targeting and independent central banks means inflation expectations are now anchored leaving more wriggle room for central banks to look through price shocks. With macro conditions much more fragile than they were in 2022, a surge in policy rates like we saw then is very unlikely.

The key lesson? Geopolitical shocks often trigger sharp, short-term volatility, but recoveries are typically swift. Staying invested and tactically diversified remains the most effective strategy to weather the storm. 

With global portfolios still heavily skewed towards US assets, the scope for further inflows into EM local-currency bonds remains substantial.

Of course, the conflict in the Middle East means trends in the US dollar will need to be monitored closely, while big oil importers could see their forecasts pared back. However, Latin America could benefit from higher commodity prices. And the AI megatrend sustains despite recent macro stress. Overall, the likelihood is that profits still broaden out in 2026. This, combined with still low valuations, supports an expectation of positive EM market performance this year.

In a world where macro and policy uncertainty are elevated, and valuations in parts of the market are still high, hedging against bad outcomes remains important. And with traditional safety assets proving unreliable, hedge funds could be a way to “diversify the diversifiers”.

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. Data as at 7.30am UK time 13 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. Source: HSBC Asset Management. Data as at 7.30am UK time 13 March 2026.

Global equity markets were on course to finish the week mixed but mostly lower, with investors cautious amid geopolitical tensions and the ongoing oil price shock. In the US, major stock indices extended weekly losses. European markets outperformed, with the Euro Stoxx 50 set to edge higher. Conversely, Japanese indices drifted lower despite a weaker yen. Other Asian markets broadly weakened: Sensex dropped, while Kospi retreated further. Both Hang Seng and Shanghai Composite index fell. Among other emerging markets, Latin American stocks consolidated following recent declines. The US dollar posted modest gains against major currencies, with gold prices paring losses. Oil-driven inflation jitters pushed 10-year government bond yields higher, led by UK Gilts. US Treasuries broadly weakened ahead of this week’s Fed rate decision.