UOBAM outlines 3 market scenarios as geopolitical risks reshape investment outlook

UOB Asset Management (UOBAM) has identified three potential market paths as rising geopolitical tensions, particularly in the Middle East, increase uncertainty for investors despite resilient global growth and continued investment in artificial intelligence, energy and infrastructure.

UOBAM has released its 2Q 2026 Quarterly Investment Strategy, highlighting a more uncertain investment environment as resilient global growth and structural innovation are increasingly offset by heightened geopolitical risks.

According to the report, global growth and corporate earnings expectations remain broadly constructive across major regions, underpinned by continued investment in artificial intelligence (AI), energy and infrastructure. However, recent geopolitical developments — particularly in the Middle East — have materially increased uncertainty, raising the risk of energy‑market disruptions, renewed inflation pressures and higher market volatility.

UOBAM cautioned that the Iran conflict is no longer a single-outcome risk and outlined three possible scenarios for the months ahead.

In a 40% probability scenario, geopolitical tensions ease, allowing energy prices to stabilise, inflation pressures to moderate, and risk assets to recover. Another 40% probability scenario assumes prolonged disruption, leading to heightened volatility and downside risks to economic growth and markets.

In a lower probability (20%) but more severe scenario, the conflict escalates, and recession risks rise materially.

Anthony Raza, head of UOBAM multi-asset strategy, said: "While geopolitical outcomes remain difficult to predict, markets are likely to focus less on political intent and more on the implications for economic stability, inflation and risk premiums. As a result, investors are reassessing the reliability of the global policy and security environment, increasing the likelihood of structurally higher risk premiums and reinforcing the need for more cautious, resilient and diversified portfolio construction."

In view of the developments, UOBAM is neutral on equities relative to benchmarks, emphasising diversification and selectivity, while remaining diversified across fixed income, overweight on gold and underweight on cash.

Re-disseminated by Wealth and Society