Quarterly Market Comment

As an active fund manager, Octagon Asset Management prioritises high-quality research as an input to decision making. It draws on research from a range of sources, local and global. This includes research provided by Forsyth Barr. Below is its most recent Quarterly Market Comment.

For the quarter ended 30 April 2026

• Global share markets made modest gains over the past three months. The MSCI World Index rose +3.4% in US dollar terms, recovering some of the losses seen in March following conflict in the Middle East. In New Zealand dollar terms, returns were stronger at +5.9%.
• Performance varied across regions. The US S&P 500 gained +4.2%, while New Zealand shares fell -3.9% and Australian shares declined -1.2% over the quarter.
• Fixed income returns were impacted by growing inflation concerns, pressuring yields higher and bond prices lower over the quarter. NZ investment-grade corporate bonds gained +0.1% for the quarter.

Middle East conflict weighs on markets in March

Global share markets fell sharply in March as conflict involving the US, Israel, and Iran created uncertainty and unsettled equity and bond markets. While this commentary focuses on financial impacts, it is important to recognise the significant human cost of such events.

At the time of writing, a ceasefire has been tentatively agreed, although tensions remain and disruptions continue in the Strait of Hormuz.

This region is critical to global trade, with around 20% of the world’s oil shipments passing through the Strait. As supply was disrupted, oil prices surged from around US$70 per barrel to as high as US$126, with gas prices also rising significantly.

The impact has extended beyond energy markets. Disruptions have affected a wide range of globally traded goods, including fertiliser, aluminium, and other industrial inputs that rely heavily on energy to produce and transport. As a result, cost pressures are building across multiple parts of the global economy.

Higher energy prices are now feeding through to the broader economy. Transport and fuel costs have increased, and businesses are beginning to pass on higher costs to consumers. This is showing up in areas such as airline ticket prices, shipping costs, and everyday goods.

Equity markets initially reacted negatively, reflecting concerns that prolonged disruption could lead to higher inflation and slower global growth.

MSCI world index and geopolitical events

Source: Refinitiv, Forsyth Barr analysis

Conditions improved in April as concerns began to ease. A tentative ceasefire and signs of progress in diplomatic discussions helped calm markets and reduce fears of further widespread escalation.

As tensions softened, energy prices pulled back from their peaks, and global share markets recovered some of their earlier losses. This rebound highlights how quickly market sentiment can shift, particularly when driven by rapidly changing news.

While risks remain, the recovery suggests investors are cautiously optimistic that the most severe economic impacts may be avoided, at least in the near term. It also serves as a useful reminder that markets can move sharply in response to short-term events, but these periods of volatility are typically temporary.

Major equity market indices (indexed to 100 on 1 Jan 2026)

Source: Refinitiv, Forsyth Barr analysis

Artificial intelligence: a rapidly evolving landscape

While global events have been driving markets in the short term, artificial intelligence (AI) remains an important long-term theme—and has recently re-emerged as a key driver of global equities. Investor focus, which had shifted towards geopolitical risks such as the Iran conflict, is now moving back to corporate earnings and growth opportunities linked to AI.

The technology is evolving quickly. It’s becoming increasingly powerful and more widely adopted across different industries. As the initial hype has eased, attention has shifted towards companies that can translate AI into real profits, rather than those driven purely by potential.

There are still important risks to consider. The pace of change is fast, competition is increasing, and the cost of building AI infrastructure is high. Not every company will succeed, and as AI becomes more accessible, new entrants can emerge quickly, putting pressure on current market leaders.

History shows that major technological shifts bring both challenges and opportunities. While not all companies will benefit equally, the overall opportunity is expanding. This reinforces the value of staying diversified, focusing on long term investments, and maintaining some exposure to this growing area.

Interest rates moving higher with bond yields improving

Higher energy prices are contributing to rising living costs, flowing through to transport, food, and everyday goods.

This has made things more complicated for central banks. While interest rates were previously expected to remain relatively steady before moving gradually higher, there is a growing sense that interest rates may rise more quickly than previously thought, especially if cost pressures don’t ease.

As a result, bond yields have moved higher since the start of the year, improving income opportunities for investors. At the same time, bonds continue to play an important role in portfolios by helping cushion periods of market volatility.

NZ corporate bond index (yield-to-maturity) and RBNZ official cash rate

Source: Refinitiv, Forsyth Barr analysis

A steady approach through uncertain times

The past quarter highlights that market ups and downs are a normal part of investing. Global events, rising costs, new technology, and changing expectations can all create periods of uncertainty.

In times like this, markets can react quickly to new information and sometimes move more than they should
in the short term. Over time, however, what really matters are the basics—how companies earn money, grow, and generate cash. Markets tend to settle and reflect these fundamentals in the long run.

Matt Henry
Head of Wealth Management Research

Zoe Wallis
Investment Strategist 

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