Most of 2026 so far has been defined by turbulent geopolitics, with the US president’s policies appearing increasingly volatile, culminating in the still ongoing conflict with Iran.
However, markets have appeared relatively sanguine despite the tension. The S&P 500 and Nasdaq are floating at near all-time highs, and emerging market stocks have also reached new records
According to data from FE fundinfo, global equity markets are up so far this year, although some have lost a chunk of initial momentum.
Mike Fox, head of sustainable equities and global equities at Royal London Asset Management, said this reflected one of the biggest lessons investors had learnt in recent years – “Pessimism just isn’t profitable in equity investing”.
Indeed, according to a recent opinion poll conducted by the Investment Association (IA), investors have remained remarkably positive so far. The survey found 47% of surveyed investors planned to make no change to their portfolios in response to conflict in the Middle East. A further 56% said their confidence in investing for the long-term remained high.
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“There’s not really been the sort of panic you’d associate with a situation like this, such as forced liquidation and people capitulating.”
Fox argued this relative optimism was a consequence of the lessons investors learnt in 2022, when they became too cautious, too quickly.
“Everyone said there had to be a recession and energy crisis and positioned accordingly, which worked out pretty well for a few months, but ultimately put you on the wrong side of the boom after that,” he said.
He argued that over the past five years, almost every time investors became bearish and the market snapped back and rose even further, with global equity markets posting multiple record years since 2023.
“If there’s anything I think people have learnt in the past five or six years, it’s that optimism pays.”
While he noted there will be a point at which this optimism “runs out of road”, until then investors will hesitate to sell out, according to Fox.
‘Why not ask what could go right?”
From a portfolio positioning standpoint, this can make it challenging to find opportunities, Fox explained.
With the market yet to experience a significant correction, there is not a large degree of exciting and obvious opportunities available to take advantage of, he explained. As a result, his team has broadly adopted a “wait and see” approach during this conflict, instead of making any major changes to the portfolio.
That said, Fox noted there are areas which look particularly interesting right now as a source of alpha, particularly for investors willing to be more optimistic.
For example, he remained broadly positive on banks and financials, which represent a 19.7% allocation with his Royal London Global Sustainable Equity fund. This is a three-percentage-point overweight compared with the MSCI ACWI.
The MSCI ACWI financials index is up 80.5% over the past five years, according to FE fundinfo data; the wider MSCI ACWI is up just 71.3% over the same period.
While it may be tempting to think that after a strong run, these stocks have less upside, there are still plenty of tailwinds, according to Fox.
“I think investors have a much better understanding that banks are the lifeblood of the economy.” If economies remain “decent” from here, then there is still a lot of value left in some of these stocks, the Royal London manager noted.
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He argued it makes sense to be an optimist about AI, which is genuinely one of the most profound changes in history, and will kick off a huge phase of capital creation.
“AI has been talked about in such a negative sense recently, about AI job losses and AI losers, but I think that’s not what’s going to happen.
“That’s the point everyone misses, they’re obsessed with the pessimism point,” Fox said. “Everyone’s asking what can go wrong with the world, why not what can go right with the world,” he concluded.
He was also positive on the UK as a diversifying asset in global portfolios, although it should be noted Fox also runs a dedicated UK mandate.
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“The UK looks like an almost perfect market at the moment,” he argued. The UK equity market is currently one of the best-value markets in the world because it’s full of financials, oil, mining, and defence stocks, all of which are particularly well positioned amid today’s tense geopolitics.
On top of this, he added it remains remarkably cheap, which means it’s well-positioned for any investor concerned about concentration in AI stocks or in the US.
“You can literally buy the UK market for the increase in market cap of the Nasdaq over the past three or four years.
“It’s an almost perfect hedge: Against growth investing, against AI, against geopolitics,” the RLAM manager said.
