March was dominated by one thing: Iran. The US and Israel’s attack have become the main driver of markets right now. With the Strait of Hormuz effectively closed for the entire month of March—disrupting around 20% of global oil supply—markets won’t return to normal until we see a clear resolution in the Middle East.

Markets have held up better than expected, falling 5.6% over the month, helped by a strong rally of almost 4% on the final day. No asset class avoided losses. Bonds fell as interest rates rose, Gold fell around 10% from its highs, and Bitcoin began to stabilise.

*Source: Factset: Kōura returns are pre-tax and post-fees. Returns over 12 months are annualised. Local market returns use the relevant markets indices; NZ Equities uses NZX50 index; US Equities uses S&P500 index; Rest of World uses MSCI EAFE Index; Emerging Markets uses MSCI Emerging Markets Index, Fixed Interest uses Bloomberg Aggregate NZ Composite Bond Index. Bitcoin return is the USD change in price of Bitcoin. The return for an Aggressive Portfolio represents the equivalent of 95% growth and 5% income assets investing in core Kōura Funds. The return for a Growth Portfolio represents the equivalent of 80% growth and 20% income assets by investing in core Kōura Funds. Returns are calculated by Kōura. Past performance is not a reliable indicator of future performance. Returns are not guaranteed, and investment values may fluctuate over time.

The Strait of Hormuz is a strategic waterway where around 20% of the world’s oil normally flows each day. It has effectively been closed, locking oil in the Middle East instead of supplying the rest of the world. 

The reduced supply has pushed oil prices sharply higher and is increasing pressure on fuel availability globally. Higher oil prices are a major issue for the global economy as they push up inflation and reduce demand for other goods and services. 

Oil is a key input cost across the economy, so higher prices flow through into goods and services. At the same time, households are spending more on fuel and cutting back elsewhere. As a result, growth forecasts are being revised down, and inflation forecasts are rising. If the war continues, these effects will worsen. 

Markets appear relatively calm given the scale of the risk. A fall of around 5–6% is modest compared to the potential impact on the global economy. 

This reflects a balance of factors. Some investors expect the situation may de-escalate, while others believe the economic impact will be temporary. Equity markets are also heavily weighted toward sectors like technology and financials, which are less exposed to oil prices. At the same time, the US economy remains relatively strong. 

Markets are likely to drift lower while uncertainty continues, but any clear resolution could lead to a strong rebound. 

The selloff has been broad, though not equal. The US has held up relatively well, supported by its safe-haven status and technology exposure. 

Korea has been one of the worst performers, falling sharply after a strong run earlier in the year and due to its exposure to energy supply issues. More broadly, Asia and Europe are expected to be hit hardest by the oil shock, while the US is more insulated due to energy independence. 

Interest rates are reflecting rising inflation risk, with 2- and 3-year rates rising by 0.5–0.7% globally in recent weeks. 

Global inflation is now expected to reach close to 4% in 2026. The key question is whether central banks will look through this spike or respond by raising rates to bring inflation under control. There is a risk they respond too aggressively, as seen in the 1970s when oil shocks contributed to stagflation. 

This comes at a difficult time for New Zealand. The economy was starting to recover, but that recovery was fragile. 

Higher fuel costs and rising interest rates are likely to reduce consumer demand and put pressure on the housing market. Banks are expecting weak growth in the June quarter, but the risk of a broader recession is increasing as these pressures build. 

Markets will remain volatile and highly sensitive to developments in the Middle East. As seen at the end of March, even small signs of progress can lead to strong market moves. 

For now, markets are likely to be driven more by geopolitics than underlying economic fundamentals, with any clear resolution likely to trigger a strong rebound. 

Update (post month-end):

Since month-end, we’ve seen a significant development, with a two-week ceasefire agreed between the US and Iran. Planned attacks have been paused, and the Strait of Hormuz — a key global oil route — is reopening for now. Markets have responded positively in the short term, with the NZD strengthening and Asia-Pacific markets moving higher. However, this is a temporary pause rather than a resolution. Uncertainty remains high, and outcomes will depend on how the situation evolves over the coming weeks.

*The views and opinions expressed in this article are those of Rupert Carlyon. This content is for informational purposes and should not be considered financial advice. Before making any financial decisions, consider consulting a financial adviser. 

*Kōura Wealth Limited is the issuer and manager of the Kōura KiwiSaver Scheme. A copy of the Product Disclosure Statement is available at kourawealth.co.nz/documents