Insights
Market Review for March 2026
War in the Middle East: Financial markets recoiled
Highly unusual: Stocks, bonds, and gold all sold-off
A costly trio: Oil, inflation, and interest rates
Feeling the pain: Man-made market downs are the worst
Glimmers of hope: Maybe, just maybe, the worst is over?
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The turmoil of warfare spread far and wide in March, both from an investor perspective and a human perspective.
Escalating conflict saw more suffering in the Middle East and contagion quickly spread through financial markets. Sharp sell-offs in equity markets, bond markets, and even in gold – an asset class typically leaned on for protection – pointed to a high level of global disorder [1].
Oil as a weapon
In response to US-Israeli attacks, the Iranian regime quickly weaponised the region’s number one commodity – oil.
Their decision to close the Straight of Hormuz to the US and its allies - one of the world’s most important shipping lanes – sent the price of oil soaring. This was for two reasons:
- First, there’s the underlying dynamic between supply and demand to consider – when supply drops but demand stays stable (or rises), then prices rise (and vice versa).
- Second, the Strait of Hormuz is a major hub for global energy needs. Before the war, up to 20 million barrels a day passed through it [2]. Therefore, it’s a really big deal if it closes.
In parallel, Iran also fired ballistic missiles and drones at the energy infrastructure of neighbouring countries including Bahrain, Dubai, Qatar and Saudi Arabia [3] – again with the view of disrupting supply.
Both decisions appear to have caught the US by surprise; with Trump writing increasingly dramatic threats and ultimatums to Iran on social channels throughout March. Presumably trying to limit the negative consequences of their own actions.
Inflation rears its ugly head, again
For investors, the sudden and large rise in oil prices was bad news.
Higher fuel costs feed into the supply chains of businesses, which can impact corporate profitability. They also typically lead to higher inflation. And when prices rise, interest rates normally rise as a counter measure.
Given that many central banks around the world have spent recent years trying to lower inflation, and then later to lower the higher interest rates that were implemented to counter that inflation, the sudden reversal in circumstances will be deeply frustrating.
Higher inflation can act as handbrake on economic growth, and the global economy wasn’t exactly firing on all cylinders before this latest war. When it’s prolonged, higher inflation can also put a strain on the equity component of a portfolio or fund.
At this stage, and given so many ‘unknowns’, the challenge lies in trying to understand exactly how impactful the higher oil prices have been, and what central banks need to do about it (if anything).
If inflation proves to be stubborn, then central bankers may feel forced to raise interest rates, which would be unwelcome news for borrowers and businesses.
Conversely, central banks may decide to play a wait-and-see game. It’s not inconceivable that a sudden ceasefire sees inflationary concerns easing back very quickly. And if that were to happen, then it might be best for interest rates to be left alone.
Asset classes did not play ball
Amid all the chaos, there were few places for investors to hide in March.
Typically, when equity markets wobble, we see cash being invested into bond markets. Technically, we would say that returns for the two asset classes have historically had an inverse relationship. The same usually applies to gold, in the sense that more investors seek it in time of economic strife because it’s viewed as a ‘safe haven’ asset. .
However, in March, there were sharp sell-offs across the board. For some investors who were concerned about rising inflation and therefore weaker corporate profitability, they decided to off-load equities. Likewise, bond markets creaked as some investors anticipated higher interest rates coming down the line and therefore sold bond positions that risked becoming less rewarding. While for gold, its popularity took a hit with some investors choosing to overlook its hedging qualities against their more pressing need to try and raise cash [4].
While not unique, it is rare by historical standards to have seen equities, bonds, and gold following similar patterns. To some extent, this has already corrected itself. . In no way do events in March change the well-established view that diversification is an important and valuable tool for investors.
Through an ethical lens
From an ethical investor perspective, March was very troubling.
First, there’s the fact that bloodshed and general warfare are tragic. While we don’t take sides, it is hard to ignore that this particular conflict felt avoidable.
Second, there’s the weaponisation of oil, and the almost-immediate economic pain that was felt as soon as daily supply was constrained. For us at Pathfinder, it reinforces the need for NZ (and others) to invest in renewable energy solutions and to reduce the country’s reliance on fossil fuels. Doing so would improve both economic and environmental resilience.
Third, and broadly speaking, last month’s short-term market turbulence will have hit the pockets of investors. While there is always a risk of loss when investing, it is galling to see man-made market downturns.
At Pathfinder, we work very hard to protect and grow the assets of our members in the right way. When events like those in March hit short-term performance of our funds, it’s frustrating. But it doesn’t prevent our mission of managing members’ investments in ways that can help improve the world in which we live.
Thankfully, there was a glimmer of hope by the end of March. Hints from Trump of a ceasefire being in sight were latched on to by investors, perhaps naively considering his track record for earning trust. But a subsequent brief rally in markets and the fall in oil price, suggested that the worst may have passed.
As ever, the long-term performance of markets, assets and funds should be the priority area of focus for any investors in our Managed Funds or the Pathfinder KiwiSaver Plan.
Sources & further reading
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Pathfinder recommends all investors receive financial advice before making an investment decision. Pathfinder is authorised to provide Financial Advice. Pathfinder Asset Management Limited is the issuer of the Pathfinder KiwiSaver Plan and Pathfinder Investment Funds. Product Disclosure Statements for the offers are available at pathfinder.kiwi. Learn more about how we invest ethically by reading our Ethical Investment Policy & Exceptions Register.
