The global growth backdrop pencilled in at the start of the year remains broadly intact, according to BNP Paribas Asset Management, which says the Middle East war has had only a limited impact on corporate profit expectations and expects equity markets to resume their upward trajectory.
Chief market strategist Daniel Morris said that while the conflict continues to shape the equity outlook, markets have shown notable resilience.
“The war in Iran continues to be the most visible factor driving global equity market returns. For example, the MSCI equity index for oil exporter Norway has gained over six per cent since 27 February, while Thailand, an oil importer, has seen its market fall by nearly the same amount.”
“Assumptions at the beginning of the year that positive global economic growth, particularly in the US, would lead to continued equity market gains in 2026 have been challenged – first by February’s artificial intelligence-induced tumult, and then by the Iran war.”
The US Federal Reserve’s response to the conflict will be pivotal, Morris said.
“Our economists are looking for two additional cuts in the fed funds rate by the end of the year, while markets point to two fewer than was the case prior to the outbreak of the conflict. If we do see the reductions, both US small cap and tech stocks should benefit.”
He added that while macroeconomic data has been reassessed, earnings revisions have remained positive year-to-date across most major indices.
“Earnings revisions so far this year have been positive for most major indices when they typically decline after beginning-of-the-year analyst optimism gives way to reality.”
Morris also noted that the sharp divergence between US and emerging market technology stocks has narrowed, with BNP Paribas Asset Management now expecting more balanced performance ahead.
“For the full year, earnings are expected to rise by anywhere from 11 per cent (Japan) to 30 per cent for the Nasdaq 100 and over 80 per cent for emerging market technology stocks thanks to the surge in semiconductor sales.”
“The most notable characteristic has been the wide divergence in returns between the Nasdaq and emerging market technology stocks,” Morris said.
While some dispersion is typical, he said the scale has been unusual, with one index up 20 per cent while the other only recently returned to positive territory.
“The cause is nonetheless well understood. During the first two months of the year Korean hardware stocks soared following the announcement by several large technology companies that they would significantly increase their AI-linked capital expenditure. Simultaneously, worries about the impact of exactly these AI technologies weighed on software stocks in the Nasdaq index. The important point is that this divergence is no longer evident.”
Morris said software stocks across regions have largely moved in tandem, aside from a brief period around the outbreak of the Iran war when stretched positioning boosted US outperformance.
“For hardware stocks, now that the increase in earnings in emerging markets has been priced in, performance has similarly recoupled; returns since the recent market low on 30 March has been similar at 16 to 19 per cent.
“The large gap in earnings growth expected for 2026 is also not expected to persist, according to BNP Paribas Asset Management, with consensus estimates for 2027 identical at 23 per cent.
“Consequently, one might expect positive but not widely dissimilar performance in the months ahead.”
Meanwhile, Schroders said the US technology sector is not the only opportunity set: “Other sectors, such as healthcare and energy, also have promising long-term growth stories.”
In its four reasons to consider exposure to active global equities note, Schroders said portfolios spanning both developed and emerging markets can tap into higher growth potential in less mature economies, translating into stronger long-term prospects.
For investors concerned about concentration risk in a narrow group of US stocks, the firm said global strategies can provide valuable diversification.
However, it cautioned that short-term factors – including tariff announcements, shifting sentiment around AI, and geopolitical shocks such as US/Israeli attacks on Iran – can still drive volatility.
“Global active managers have multiple options to mitigate the risks these disruptions bring … when markets are turbulent, it helps to have a full array of choices to limit the impact of downturns.”
