Geopolitics: risks still front-and-centre

At the time of writing, the US and Iran are in a fragile ceasefire, with only halting progress towards a lasting diplomatic solution. 

Our base case is for an agreement and a gradual reopening of the Strait of Hormuz. However, there remains a substantial probability of renewed conflict and/or a much more lasting disruption to global energy markets. 

Either way, this episode underlines key tenets of our long-term outlook: geopolitical risk is structurally elevated, implying higher and more volatile inflation, while bond-equity correlations are likely to become increasingly positive. 

It also reinforces a core House View principle: short-term market timing is difficult. Portfolios should therefore remain exposed to long-term drivers, while being constructed to absorb shocks through diversification rather than reactive de-risking. This underpins our emphasis on the US dollar as a hedge, even while maintaining pro-risk positions elsewhere.

Economics: still growing, but by slightly less – and with higher inflation

In a plausible base case – in which oil prices average around US$100 per barrel for another month before falling back – global growth would be around 30 basis points weaker than otherwise this year, with global inflation some 50 basis points higher.

However, at 3.2% global GDP growth and 4.0% global inflation in 2026, these outcomes are far from stagflationary or recessionary. Fiscal easing, AI related capex, and fading tariff uncertainty should continue to support global growth. 

The rise in inflation is unhelpful for central banks, but remains well below post-pandemic levels. As a result, a degree of further monetary policy easing in economies such as the US and UK later this year remains possible. 

The more significant economic risks lie in adverse scenarios, in which the Strait of Hormuz remains closed for longer and oil prices rise sharply. The House View is considering scenarios with oil prices as high as $180 per barrel. That could mean high single-digit inflation, recessions in many economies, and sharp interest rate hikes.

Corporate risk: positive, but trimming on the rebound

We retain a positive view on corporate risk, but with greater caution following the recent rally.

In DM, earnings momentum remains supportive, helped by AI capex, fiscal easing, and continued economic expansion. The US economy looks relatively more insulated from the geopolitical shock. Technology stocks are expensive, but not yet in bubble territory. Japanese equities can continue to benefit from corporate reforms and exposure to technology winners. European equities look attractive on valuation grounds.

We’ve reduced the positive signal on EM equities following a substantial rebound from the initial geopolitical sell-off. Ongoing Middle East risks mean it’s a good time to trim EM equity positioning. However, there remains a medium-term positive case for the asset class, with EM benefiting from the AI hardware supply chains and sectors with high asset intensity and low obsolescence.

In short, we’re moderating and rebalancing equity risk-taking – not retreating from it.

Bonds: earning carry, diversifying growth risks, but threatened by higher inflation

We maintain a positive view on global bonds, albeit with important caveats. 

Government bonds can still diversify downside growth risks, particularly if the energy shock weighs on demand. Markets may have become overconfident about future rate hikes following the rise in inflation and are underappreciating the downside growth risks that would allow bonds to perform well.

However, increased defence spending, rising fiscal pressures, and a structural rise in inflation volatility are likely to keep yield curves steep and long-term bond term premia elevated. 

EM local currency bonds remain attractive, supported by solid fundamentals, negative net issuance, and selective scope for further easing. We prefer Latin America and frontier markets over Asia, where the energy shock is felt most acutely. 

All-in credit yields remain appealing, with defaults likely to stay low in the absence of a sharp slowdown, even as valuations warrant greater selectivity.

US dollar: the main diversifier to the energy shock

The US dollar has been one of the few effective portfolio hedges against geopolitical escalation and energy price spikes, outside of energy commodities. That’s because the US economy is relatively more insulated from the shock. 

At the same time, the nomination of Kevin Warsh as the new Federal Reserve chair has prompted less questioning of US institutional credibility than might have been feared earlier in the selection process. 

That said, if and when geopolitical risks fade, the theme of gradual reallocation away from US assets could re-emerge, weighing on the US dollar. So, the positive US dollar signal in the Aberdeen House View is driven primarily by its role as a portfolio hedge, rather than as a directional trade.

Private markets: infrastructure > real estate > private credit

Private markets remain an important part of the House View, but with clear differentiation.

Infrastructure is our highest conviction private asset, supported by long run structural tailwinds. These include rising defence spending, the energy infrastructure build-out, and the sizeable global infrastructure investment gaps identified by our research.

Global property remains positive, underpinned by strong tenant demand and limited supply. However, higher bond yields increase valuation uncertainty.

Private credit has been taken back to neutral, reflecting softer sentiment following high profile fund gatings and covenant concerns. There remains a solid structural case in higher quality, investment-grade segments of private credit, but underwriting standards appear to have loosened too far in lower-tier segments of the market.

Overall positioning

The Aberdeen House View continues to favour staying invested, but with greater balance after the market rebound:

In a world of persistent uncertainty, diversification – not market timing – remains the cornerstone of portfolio resilience.