Global financial markets have absorbed the shock of escalating tensions in the Middle East with unexpected resilience, according to Australian Retirement Trust (ART) Senior Portfolio Manager Jimmy Louca.
He said the reaction to the United States’ conflict with Iran had been more muted than during other market disruptions, particularly United States President Donald Trump’s ‘Liberation Day’ announcement of global tariffs last year.
“Given the potential impact on economic outcomes, the Iran conflict has actually been more subdued. That was somewhat surprising,” Louca said in an interview with Azzet.
He cited equity market declines of roughly 8–9% in the aftermath of the U.S. attack on Iran on 28 February 2026, compared with about 15% after Liberation Day on 2 April 2025.
The contrast was striking, given the Iran conflict carried the risk of severe disruption to global trade and energy supplies, which “definitely made it quite a different drawdown to navigate”.
Shocks and opportunities
The differences extended beyond the size of market falls, with Louca saying the two events triggered different responses across asset classes and regions, forcing investors to adapt quickly.
During Liberation Day, markets focused heavily on its implications for global growth, with U.S. equities bearing the brunt of the sell-off and creating opportunities for investors like ART willing to buy into weakness.
At the same time, bond markets rallied sharply as investors sought safety, allowing portfolio managers to take profits and rotate into equities.
By contrast, the Iran crisis had been driven primarily by inflation concerns raised by rising energy prices.
“In this case, markets have focused on inflation impacts and priced in higher central bank rates,” Louca said.
“So rather than selling bonds, we’ve actually been building positions into bonds which have cheapened significantly.”
ART, which manages more than A$370 billion (US$266 billion) for more than 2.4 million people, used market volatility to generate additional returns by using a ‘dynamic asset allocation’ (DAA) approach to exploit market inefficiencies.
This contrasted with a passive strategy that maintained a fixed allocation regardless of market conditions.
During the Iran-related volatility, ART increased exposure not only to U.S. equities after their correction but also to markets more directly affected by energy shocks, such as those in Europe and Japan.
“We overweight assets that have become cheap and then sell them at higher levels,” he said. “That’s how we harvest volatility for additional member returns over the cycle.”
Crisis not yet resolved
Although some markets had returned to record highs, Louca said he believed the Iran conflict was far from over.
“We still haven’t resolved the ceasefire,” he said.
Evidence of this lingering uncertainty could be seen in elevated bond yields and the equity performance of energy-importing economies, which had yet to fully recover.
“There’s probably more to play out,” he said.
Louca saw the conflict as part of a broader pattern since the global pandemic marked by more frequent supply shocks, higher inflation and demand-side forces like the energy transition, artificial intelligence growth and higher defence and infrastructure spending.
The result was a more complex investment environment, where traditional portfolio structures like the classic ‘60/40’ portfolio may no longer be sufficient.
ART preferred 60% of assets in equities, 30% in private assets and 10% in bonds and cash rather than 60% in equities and 40% in bonds, an allocation that could struggle, particularly if inflation stayed high.
Private assets like infrastructure and real estate provided inflation protection through revenue streams linked to price levels, such as toll roads and long-term leases.
“They’re often in regulated or quasi-monopolistic environments with pricing power,” he said.
AI opportunities
Louca identified AI as another major force reshaping markets, but believed that the initial wave of gains in technology stocks may already be priced in.
“The sector has gone from being underappreciated to more fairly valued,” he said.
The next phase of opportunity may not be in the technology developers, but in the industries that adopted AI most effectively.
“That could be in healthcare, financials, or countries that move faster on adoption,” he said.
Despite its global reach, ART continued to place significant emphasis on Australian investments, with domestic equities and infrastructure remaining a key part of the portfolio.
Although the fund wanted to support the Australian economy and communities, investment decisions were driven by expected returns rather than geographic preferences.
“We’ll go where the best opportunities are,” Louca said.
