Jeremy Richardson from the RBC Global Equity team discusses the key considerations when managing volatility in uncertain times.
Highlights:
Prolonged Strait of Hormuz closure restricts energy and commodities, depleting inventories and raising stagflation and recession risks for energy-scarce regions. These risks are not yet reflected in 2026 forecasts.
Concentrated AI investment drives growth but creates narrow market focus, leaving markets vulnerable to volatility if confidence in AI returns or tech IPOs wavers.
18-24 months of narrow markets driven by isolated outperformance pockets have caused investors to overlook fundamentals, creating a disconnect between volatility sources and valuations.
In the absence of a strong macroeconomic consensus, remaining invested in diversified portfolios that capture long-term value creation is key to mitigating volatility and geopolitical risks.
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Jeremy Richardson: Hello. This is Jeremy Richardson from the RBC Global Equity team, here with another update. Three things, I think, should be in front of investors' minds as we head through into the summer. The first of those things is the length of time that the ongoing disruption we're seeing in the Middle East, in particular, the closure of the Strait of Hormuz, has on the global economy. We've seen restrictions on the amount of energy passing through the Strait, but also fertilizer, ammonia, and other much-needed commodities.
The reason why this is important, obviously, is because every day, every week, every month, where supplies continue to be restricted, existing inventories are being whittled down, and that is creating upward pressure on prices. That upward pressure on prices is raising fears of stagflation, potentially even recession, in those parts of the world that are energy scarce. That's not currently being reflected in share price estimates or forecasts for the rest of this calendar year. The second thing worth reflecting upon, I think, is also the continued level of investment going into artificial intelligence.
This is a good thing for global equity markets. It's acting as an accelerant of economic growth, which is to be welcomed, but it's not being spread equally. We're creating these pockets of market focus and attention, which are great so long as they last, but any signs of a lack of confidence in that investment, any signs that returns on investment on that capital expenditure may not be forthcoming, or any whispers of doubt around some of the large private companies who are rumored to be looking to be coming to market, listing on public equity markets in the second half of this year, will not be taken well in global equity markets, and it could be a course of market volatility.
The final thing, I think, for investors to focus on is the structure of the market itself. For the last 18 months to 2 years, we've seen quite narrow market conditions, where small pockets of outperformance have been driving the overall market, things like gold, things like memory stocks. What we haven't really seen is the emergence of a strong macroeconomic consensus. The market has tried to experiment at times over the last few months with trying to broaden out, leaving some of these pockets of outperformance behind and trying out new investment stories, new investment narratives, which if it means more stocks should be outperforming, is probably to be welcomed.
We haven't seen any consistency within the market in this regard. In the absence of a strong macroeconomic consensus, it's meant that investors have been reluctant instead to focus on company fundamentals. Coming back to what management teams would be saying to investors as they try and look forward into the second half of this year and the amount of confidence they feel to give strong, encouraging, forward-looking remarks, you can see that maybe a disconnect between some of the sources of potential volatility and the levels of markets that they are at the moment.
We do advocate remaining invested because the single biggest driver of long-term share price performance is the value that you get from great companies adding value from combining labor, capital, and innovation together, but please don't disregard the need for having a diversified portfolio, because in the world of potential and increasing volatility, in the world of geopolitical uncertainties, then that diversification should hopefully mean that more of that value creation from the fundamentals should be retained within portfolios. I hope that's been of interest, and I look forward to catching up with you again soon.
