With the Middle East gripped in a crisis, RBC Wealth Management, together with other wealth managers, discuss the global impact on asset allocation and how significant geopolitical events have impacted the stock market.

Global equities have fallen as the conflict in the Middle East escalates, while oil prices have surged, with West Texas Intermediate fetching $101 per barrel amidst worries of falling oil output and a squeeze on supplies via the crisis-hit Gulf.

For Asia – which is an important importer of oil, the crisis looks like a blow. However, according to RBC Wealth Management, the outlook for the Asia-Pacific region remains positive in the medium to long-term. The Toronto-headquartered firm also recommends maintaining US equities at market weight for long-term allocation.

Oil prices rose sharply this morning, as a result of the crisis, with Brent crude oil, the international benchmark, climbing over 25 per cent. Investors are increasingly worried about further oil production cuts in the Middle East. 

In line with other investment managers, Mark Haefele, chief investment officer at UBS Global Wealth Management expects volatility to remain elevated in the near term as the conflict disrupts markets and energy flows. But his base case is that the conflict will be relatively short-lived, given the rapid degradation of Iranian military capabilities and US political incentives to avoid a prolonged period of higher energy prices ahead of the midterm elections. He believes that a relatively rapid end to hostilities and a resumption of normal oil flows would likely cause prices to fall quickly, although they may remain about pre-conflict levels. Norbert Rucker, head of economics and next generation research at Swiss private bank Julius Baer also emphasized today how oil prices have entered panic mode but his base-case scenario remains a short-lived intense spike in energy prices and he reiterated his neutral view on oil and natural gas exposure.  

The conflict between US/Israel versus Iran – with Gulf states such as the UAE, Bahrain and Qatar drawn in – has seen the closure of the Straits of Hormuz, creating a chokehold on about 20 per cent of the world's flows of oil, at least in the short term. Economists and weath managers are trying to figure out whether such disruptions will stoke inflation and hit growth, and how this shakes out for countries that are particularly dependent on oil. It also fuels debate about the extent to which countries can viability reduce reliance on fossil fuels not just for climate change reasons but as a buffer against geopolitical conflict.

Asia-Pacific
Kelly Bogdanova, vice president, portfolio analyst at RBC Wealth Management, highlighted that Asia-Pacific equity markets traded sharply lower last week amid the developments in the Middle East. She expects near-term equity market movement to be very volatile. Along with a number of other investment managers, she believes that the medium- to longer-term outlook for the region will remain positive, driven by a combination of factors: still-respectable GDP growth forecasts, modest inflation, and mostly accommodative policies. In particular, she thinks the regional tech sector could continue to benefit from artificial intelligence capex.

Samy Chaar, chief economist, CIO Switzerland at Swiss private bank Lombard Odier, also told this news service last week that he likes Asian tech and remains invested there. “US tech is quite expensive so we shifted some of our US tech investments to Asia last year where it is cheaper. We bought Korea,Taiwan, and it is doing pretty well,” he said.

Preksha Shah, investment specialist at UK wealth manager St James’s Place, also remains constructive on emerging market equities, including China, supported by attractive valuations, ongoing policy stimulus, and gradually improving earnings from a low base.

On Japan, Bogdanova thinks equities will remain under pressure if the conflict drags on. Japan is a net oil importer – more than 90 per cent of its imported crude comes from the Middle East, more than 60 per cent of its oil imports pass through the Strait of Hormuz, and it also depends on the Middle East for liquefied natural gas and naphtha. Japan has 250 days’ worth of oil reserves as of the end of 2025.

The Bank of Japan (BoJ) Governor Kazuo Ueda has warned that the situation could affect the domestic economy and inflation. Industries most vulnerable to a prolonged Middle East conflict include banking and financial services, airlines and transportation, shipping, energy-intensive manufacturing, oil refiners and petrochemicals, and electronics and export-oriented industries. If the conflict drags on, she believes Japanese equities will remain under pressure. She thinks the yen could remain weak given that Japan has to import more expensive oil, which is an unfavourable supply-side price pressure. Higher oil prices could also affect the timing of the next BoJ rate hike.

US market
Bogdanova believes that it is prudent for investors to assume that military and geopolitical risks can push the US equity market into a temporary 5 per cent to 10 per cent pullback or, in rarer cases, a longer-lasting correction of greater magnitude. Also, with the S&P 500 near its all-time high, such selloffs need to be put into perspective. While the average 6 per cent decline of the past 20 episodes should not be dismissed, it is well within the bounds of a typical, modest pullback in many scenarios that often confront markets – including those that have nothing to do with military clashes.

Bogdanova recommends maintaining US equities at the market weight level (long-term strategic allocation level) in portfolios as long as indicators are signaling that the US economic expansion should persist, and S&P 500 profit growth is not materially threatened. However, she is mindful that this Middle East crisis is highly fluid and unpredictable, and events could escalate further. She thinks it is prudent to expect and plan for some potentially unnerving market volatility this year.

Meanwhile, Haefele, believes that one of the most effective ways of dealing with a more polarized geopolitical environment – which creates a wider range of potential risk scenarios – is to increase asset class and regional diversification.

“Adequate exposure to quality fixed income and alternatives such as hedge funds can help reduce portfolio volatility and limit the impact of shocks. Investors should, of course, assess their ability and willingness to manage risks related to alternative investments,” Haefele said. He sees further upside for broad commodities in 2026, driven primarily by his positive outlook for metals. The fast-moving nature of events in the Middle East increases the appeal of actively managed commodity strategies in his view, given increased intra-commodity market volatility. “We also believe a modest allocation to gold, of up to a mid-single-digit percentage of total assets, can enhance diversification and buffer against geopolitical risks,” Haefele added.