DBS: «Complacency is Unwarranted» in Mideast Conflict
US equities have historically performed well after major conflicts. However, the current war in the Middle East may not play out the same way, according to DBS, which stresses to investors that «complacency is unwarranted».
The Iran war continues into its third week with the death toll in the thousands and no clear sign of an end. According to a DBS report, investors should not be excessively reliant on historical trends in relation to American stocks for the situation this time around.
«While history suggests that US equities have often delivered positive returns following major conflicts, complacency is unwarranted for the recent Middle East conflict,» the bank said.
«As the conflict continues to evolve, investors are advised to adopt risk management measures in their portfolio construction which include gaining greater exposure to gold and substituting partial US equity exposure with the S&P 500 Low Volatility Index.»
Three Themes in Q2
The Singaporean lender named three themes that it believes will dominate the narratives for the second quarter of 2026.
First, oil remains the key transmission channel of the military crisis in the Middle East, given Iran’s role as the fourth‑largest OPEC producer, with rising energy prices being problematic for risk assets.
Second, Fed chair nominee Kevin Warsh’s policy stance signals a potential reset with increased likelihood for «renewed quantitative tightening and implies yield curve steepening».
Lastly, diversification beyond crowded trades with recent profit-taking viewed as «transitory» and expectations for a «return to fundamentals», including pre-crisis themes like precious metals and technology, driven by «dollar debasement« and «AI supremacy», respectively.
EM and Japan Equities
On diversifying away from crowded trades, DBS recommends investors add exposure to emerging markets (EM) and Japan equities. EM equities stand to benefit from Fed rate cuts, dollar weakness, strong earnings growth, and light positioning, while Japan equities are supported by fiscal stimulus, governance reforms and an attractive yield gap.
«Global markets are navigating a rare convergence of geopolitical headwinds and technological tailwinds; the paradoxical nature of this environment mirrors the challenging yet hopeful market conditions that investors are facing today – an era where the old playbook no longer applies,» the bank added.
