Alastair Power, Investment Research Manager
- Geopolitics continue to affect the markets
- Inflation causing pressure on equities
- Does AI present risk or opportunity?
With the US-Iran conflict having become more protracted than some initially expected, financial markets may appear resilient at first glance. The question for investors is whether this reflects confidence or complacency.
On the one hand, concerns exist around the ongoing elevated price of energy, particularly oil, and its implications for the outlook for global inflation and economic growth. On the other, the ongoing performance of companies within the artificial intelligence (AI) supply chain, and a series of blockbuster initial public offerings (IPOs) in the US, are signaling a more exuberant ‘risk on’ market environment.
Pressurised inflationary environment
The potential for a more elevated inflationary environment has been an area of concern. Economic growth rates are expected to soften as rising costs hurt company margins and declining real wages squeeze consumer spending.
The combination of slow or stagnant economic growth and rising inflation rates, often known as stagflation, is generally considered a more challenging period for risk assets, including equities and corporate bonds. Within such periods, research indicates outperformance of more defensive sectors with a lower exposure to economic cycles, such as materials, utilities, healthcare, and consumer staples.
As a result, client portfolios may benefit from a tilt toward defensive sectors and real assets, such as commodities and property, which tend to preserve value when growth slows and prices rise.
Such environments are generally considered more challenging for conventional bonds, but better for inflation-linked bonds, whose returns are tied to inflation and therefore help protect purchasing power. They are potentially useful for investors seeking to preserve real returns and demand has renewed as a result. An overview of the asset class is provided in this month’s
Insight article, Inflation Linked Gilts Explained. The
Stock Focus article explores a capital preservation focused investment company, Capital Gearing Trust (CGT). The Trust has a long track record of outperforming an inflation-plus benchmark, with a healthy allocation to inflation-linked bonds as a cornerstone of its strategy.
AI momentum: opportunity or risk?
Away from inflationary concerns, risk assets continue to trade at premium valuations. The scale of investment into the AI supply chain has been driving market performance, particularly in Asia. In the region, the semiconductor-heavy Taiwanese and South Korean markets have gained 60.8% and 121.1%, respectively, for 2026 to 8
th June 2026.
In the US, a series of high-profile initial public offerings (IPOs), the process through which a private company becomes publicly traded, indicates ongoing enthusiasm for the artificial intelligence outlook.
At the time of writing, Anthropic, the AI company behind Claude, has reportedly submitted a confidential filing, with the details having not yet been made public. With speculation around the official floatation date and price, it remains to be seen whether initial trading performance will match expectations.
The balance of concern and positivity
Overall, markets appear to be balancing concerns against the ongoing positive outlook for AI and related developments. With the scale of investment and significant potential for the latter, the ongoing performance of equity markets is understandable, especially if fundamental company performance remains robust.
Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. Investments and income arising from them can fall as well as rise in value. Past performance and forecasts are not reliable indicators of future results and performance. The information and views were correct at time of publishing but may have changed at point of reading.