March 2026 was a difficult month for global markets, defined by a sharp deterioration in geopolitical conditions. Escalating conflict in the Middle East and severe disruption to the Strait of Hormuz drove energy prices sharply higher, altered the inflation outlook and prompted a significant reversal in several established market trends. The MSCI AC World Index declined -7.2% over the month, with most asset classes delivering negative returns. Umbra's MPS portfolios were not immune to these broader moves, though portfolio diversification provided meaningful resilience relative to benchmarks.
The dominant macro story of March was the escalation of the Middle East conflict and its impact on global energy markets. Brent crude breached $100 per barrel as Strait of Hormuz disruptions strained supply, while natural gas markets — particularly in Europe and Asia — experienced an even more pronounced shock given their dependence on LNG imports. Beyond energy, broader commodity prices also firmed, reinforcing concerns around second-round inflation. Investor sentiment shifted quickly away from the benign disinflationary environment that had characterised earlier in the year, toward a more uncertain regime defined by geopolitical risk and supply-side price pressures.
Central banks responded cautiously to the evolving backdrop. The Federal Reserve held rates unchanged at 3.5%–3.75% for a second consecutive meeting, maintaining a careful stance despite signs of cooling in the labour market, with non-farm payrolls falling unexpectedly by 92,000 in February. The Bank of England adopted a notably more hawkish tone, signalling it stood ready to act if inflation proved persistent — a particularly concerning development given the UK's significant reliance on natural gas and its already strained fiscal position, with government borrowing rising to £14.3bn in February.
Global equities fell sharply, with the MSCI AC World Index declining -7.2% over the month. Regional performance was heavily influenced by energy exposure and proximity to the conflict. European equities underperformed, with the MSCI Europe ex-UK Index falling -8.3%, as the region's energy import dependence amplified the inflation shock. UK equities proved relatively resilient in comparison, with the MSCI UK All Cap Index falling -5.9% in March but delivering +4.0% for the quarter, supported by its energy and commodities weighting. Emerging markets were broadly flat over the quarter, though this masked significant dispersion, with commodity exporters such as Latin America (+14.7% for the quarter) outperforming energy importers such as South Korea, Taiwan and India. Japan ended the quarter positively, with the TOPIX rising +3.6%, though early gains from yen weakness and the LDP election victory were partially retraced as the month progressed.
Fixed income markets also came under pressure. The Citigroup World Government Bond Index fell -3.2% over the month as higher energy prices and renewed inflation concerns reversed near-term rate cut expectations, with the sell-off most pronounced at the front end of the curve. Regional divergence was marked — US Treasuries proved relatively resilient given domestic energy independence, while European and UK government bonds underperformed meaningfully, reflecting their greater sensitivity to energy costs and a more hawkish shift in central bank rhetoric. Emerging market debt also suffered, with hard currency bonds falling -2.9% and local currency debt down -3.6% over the month, weighed down by US dollar strength and risk-off sentiment.
Credit markets showed relative resilience despite negative returns. Investment grade credit declined -2.0% over the month and -0.5% for the quarter, while high yield fell -2.5% and -1.3% respectively. US credit outperformed European counterparts across both segments, supported by stronger underlying corporate fundamentals and greater insulation from the energy shock. Within alternatives, gold declined -11.9% over the month, reflecting position unwinding and rising real yields, though it remains up +7.0% for the quarter in sterling terms. The medium-term investment case remains intact given the backdrop of elevated geopolitical risk and inflation uncertainty.
Listed infrastructure was a relative bright spot among alternatives, falling only -1.8% over the month while remaining up +11.0% for the quarter. The asset class benefited from its inflation-linked cash flow characteristics, which provide earnings visibility in a more uncertain price environment, alongside continued structural demand across energy transition, digital and transport networks. Overall, March served as a reminder of how quickly the macro environment can shift, and underscored the importance of diversified portfolio construction and disciplined asset allocation in navigating periods of acute geopolitical disruption.
