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Lombard Odier sees limited market fallout from Middle East conflict, keeps portfolios neutral
Swiss bank’s CIO says markets are pricing a short conflict with limited oil impact, keeping equity and bond allocations neutral while favouring quality stocks and gold amid global uncertainty
- PUBLISHED: Sun 12 Apr 2026, 9:57 PM
As geopolitical tensions in the Middle East continue to unsettle global markets, Lombard Odier’s base case remains that the conflict will be relatively short‑lived, with only a temporary impact on oil prices and no need for major portfolio shifts away from risk assets.
“Our base scenario remains a limited duration conflict, with a short‑term impact on the oil price, and we keep portfolio exposures in equities and bonds at neutral levels,” Michael Strobaek, Global Chief Investment Officer at Bank Lombard Odier, told Khaleej Times. He added that recent market moves have already been factored into positioning, with the group using a pullback in US equities to adjust exposures. “We took advantage of the decline in US equity valuations to bring our exposures to neutral from underweight levels,” Strobaek said, while trimming holdings in the UK market, which saw short‑term gains linked to Middle East developments.
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While the Swiss private banking and asset management group continues to prepare for alternative risk scenarios — including a sharper rise in oil prices or a prolonged disruption to the Strait of Hormuz — Strobaek stressed that, for now, markets appear to be absorbing the shock without derailing the global growth narrative. “Financial markets have already absorbed some of the energy shock,” he said, noting that although global equities have lost ground, earnings expectations have continued to rise and corporate bond spreads remain stable.
Against this backdrop of heightened uncertainty, Strobaek said investors must adapt to a world where geopolitical and policy shocks are more frequent, but not necessarily incompatible with strong long‑term returns. “Investment portfolios must be constructed to withstand more frequent policy, economic and financial shocks,” he said. A fragmented global order, shaped by shifting alliances, supply chain realignments and rising tariffs, demands “discipline, strong strategic foundations, portfolio diversifiers and agility in the face of fast‑moving events”.
Recent years, he argued, have shown that investor caution during turbulent periods can be costly. “It is often most rewarding to step into markets in turbulent times,” Strobaek said, pointing to the market recovery that followed last year’s US tariff announcement. “Investors would have been disadvantaged by not investing out of fear.”
Geopolitical fragmentation has also accelerated portfolio diversification away from US assets and the dollar, benefitting alternative assets such as gold. Strobaek described the dollar as increasingly sensitive to shifts in risk appetite and interest rate differentials, requiring “continuous re‑assessment of FX‑hedging strategies”. At the same time, gold remains a core hedge. “We also favour gold, which can act as a valuable risk hedge in both growth and inflation shocks,” he said.
For Gulf economies, the outlook hinges on the duration and intensity of the conflict. “Much depends on the length and severity of the conflict,” Strobaek said. If hostilities ease without lasting damage to oil infrastructure, the region is well placed to recover. “If, as we believe, it winds down in a relatively short timeframe without further long‑lasting damage to critical oil infrastructure and production sites, the region will be able to rebound.”
However, he cautioned that escalation would have a far more serious economic impact. While Saudi Arabia and the UAE have diverted some oil exports via pipelines, Strobaek said overall regional oil flows have “decreased substantially”. “If the conflict were to escalate further, degrading critical infrastructures, or last for a more prolonged period, impacts would be far more material unfortunately, and 2026 growth rates could be negative,” he said.
Beyond geopolitics, artificial intelligence remains a defining force for global equity markets, although Strobaek warned investors against confusing market narratives with real productivity gains. “AI will remain in the driving seat for equity markets and earnings expectations,” he said, particularly in the US, Korea and Taiwan. But the economic benefits will unfold over years, not months. “We have modelled AI productivity gains, which we expect to play out over years rather than weeks or months.”
He pushed back against comparisons with the dot‑com bubble, arguing that today’s rally is earnings‑driven. “Profits from major tech companies are in line with their high share prices,” Strobaek said. “There is a strong correlation between earnings per share and stocks’ prices.” While recent volatility in software stocks has unsettled markets, he said this reflects investor impatience rather than a weakening of AI’s long‑term potential. “Markets want instant clarity, but AI is rewriting expectations faster than it can rewrite office practices.”
As for investment risks in 2026, Strobaek said volatility is likely to persist, requiring vigilance without overreaction. “In the very short term, investors must be hyper vigilant, without overacting to this situation,” he said. Under Lombard Odier’s base scenario, the firm does not expect a materially deeper equity market drawdown and continues to favour “quality and resilience” within equities — companies with pricing power, strong balance sheets and reliable cash flows.
While government bonds currently offer limited diversification benefits, Strobaek emphasised the importance of flexibility as market conditions evolve. “The range of plausible outcomes is wide, and markets shift rapidly on new information,” he said. “By monitoring the interaction between inflation expectations, growth momentum and policy pricing, we can adjust portfolios proactively.”
Associate Editor Somshankar Bandyopadhyay brings more than three decades of experience to the KT newsroom. Currently, he manages the news production of the business section, ensuring that the top economic and business news of the day reaches its readers.