As May came to a close, financial markets continued to be shaped by two dominant forces: developments in the Middle East and the relentless rise of artificial intelligence. Hopes of a truce between the US and Iran brought some relief to equity and bond markets, easing pressure on oil prices, although uncertainty around the Strait of Hormuz and global energy supply remains elevated. Equity markets moved higher, particularly in the US and emerging markets, supported by strong earnings and sustained investment in AI, while the energy sector lagged and IT surged. Bond markets reflected a more balanced outlook, with yield pressures stabilising as inflation concerns became better understood. Against this backdrop of geopolitical uncertainty and structural growth driven by AI, we maintain a neutral allocation to equities, with a modest tilt towards the IT sector, and have adjusted our bond positioning to neutral as risks to yields appear more contained.

Highlights this month:

• Financial markets dominated by Middle East and AI
• Rapid growth in AI investments but no overinvestment
• IT sector overweight expanded