Market Commentary - March 2026

29 April 2026

  • A look at recent market developments

    After several years of strong returns across global share markets, the first quarter of 2026 saw a period of decline.

    A major influence was a sharp increase in geopolitical tension in the Middle East. Military action by the US and Israel in Iran disrupted a key global oil supply route, pushing oil prices from around USD 70 per barrel to above USD 100 per barrel in a short period.

    This increase in oil prices ignited fresh concerns about inflation and the outlook for global economic growth. As a result, investor confidence weakened and share markets fluctuated.

    Bond markets were similarly affected. Higher oil prices led investors to reconsider the outlook for interest rates, with expectations shifting away from potential rate cuts and toward the possibility of rate increases in some regions.

    Sentiment moved quickly throughout the quarter, alternating between concerns about a prolonged conflict and optimism around a potential resolution. This was reflected by movements in investment markets, with share markets rebounding strongly following fledgling signs of a ceasefire in April.

     

    Geopolitical risk in context

    While events like this can feel significant, they are not unusual in a longer-term context.

    Periods of heightened geopolitical tension have occurred regularly over the past few decades, but investment markets do a good job of ‘looking through’ these periods. In fact, when looking at previous spikes in geopolitical tension, global share markets have, on average, delivered positive returns over the following one, three, and five year periods.

    While each event may be uniquely different, this pattern is reassuring. Markets react to new information quickly, but over time, returns are driven more by underlying economic and business fundamentals.

     

    Is this like the 1970s?

    The recent rise in oil prices has led to comparisons with the oil crisis of the 1970s. While there are some similarities, the scale is very different.

    In the 1970s, oil prices increased by around 300-400%, contributing to a prolonged period of high inflation and weak economic growth, and share markets fell sharply over multiple years.

    In contrast, the increase in oil prices this year has been much smaller, with prices rising by around 70% at the peak and easing since then.

    Share market declines have also been more modest and short-lived so far, with markets already showing signs of recovery following a move towards the negotiating table in April.

    This suggests the current environment is more likely to reflect a temporary disruption rather than a prolonged structural change.

     

    A changing AI narrative

    Artificial intelligence (AI) remains an important long term theme in markets.

    However, the focus has shifted over the past quarter. Rather than broad enthusiasm lifting all AI-related companies, investors have become more selective, placing greater emphasis on profitability and real-world application.

    Companies that can demonstrate clear financial benefits from AI investment have generally performed better, while others have seen more muted returns.

    This reflects a more mature phase of the theme, where fundamentals matter more than expectations.

     

    New Zealand in focus

    In New Zealand, the Reserve Bank of New Zealand (RBNZ) left the Official Cash Rate unchanged at 2.25%, noting that the economic recovery is still in its early stages.

    Inflation is expected to rise in the near term, with forecasts reaching around 4.2% in the second quarter, largely due to higher energy and transport costs linked to global oil prices.

    At this stage, the RBNZ has indicated it is focused on the broader economic outlook, rather than reacting to short term changes in inflation.

     

    Taking a longer term view

    Periods like this can feel uncertain, particularly when markets move quickly in response to global events.

    The key for investors is not to focus on the immediate short term market volatility. Looking instead at their investment performance over significantly longer timeframes is what provides much more useful perspective.

    Market downturns linked to spikes in geopolitical tension have historically been followed by recovery, often before the underlying issues are fully resolved.

    For long term investors, maintaining a diversified portfolio and focusing on long term objectives remains a consistent and reliable approach.

    The information contained in this article is intended to be of a general nature. It does not take into account the objectives, financial situation or needs of any particular person, and does not constitute financial advice. Consilium NZ Limited is the issuer of the Evidential KiwiSaver Scheme. For more information on Evidential KiwiSaver Scheme including a copy of the Product Disclosure Statement, visit www.evidential.co.nz