Overview
The escalation of hostilities in the Middle East has produced an uncommon and sustained burst of market volatility that is testing investors' ability to manage risk. For many market participants, the recent weeks have meant cutting exposure, working through weekends and coping with a heightened pace of market activity as the conflict, now entering its fifth week, undermines traditional hedges and sends shockwaves through equities, commodities and credit markets.
Fund managers pare back to sleep
Wang Yapei, a Shanghai-based fund manager at Zijie Private Fund, described the pressure on portfolios as visceral and immediate. Faced with a steep Chinese market rout at the start of the week, she said she reduced holdings sharply - "I don’t like rollercoaster rides ... the opening was ugly, so I cut portfolio positions to roughly 30%," - and found that the move brought personal relief. Despite a partial market rebound later in the week, Wang said she remains reluctant to rebuild positions because of relentless, unpredictable swings across stocks, oil, bonds and gold. "Today, you seek bottom-fishing and the next day, you suffer from another selloff," she said, adding that the desire to reduce holdings is driven in part by a wish to "sleep well at night."
No reliable havens
The market shake-up stems from uncertainty about how long the U.S.-Israeli war with Iran will continue and the macro consequences that could follow - particularly for oil prices, inflation, interest rates and central bank policy. The conflict began in late February with joint U.S.-Israeli strikes on Iran and has prompted Tehran to effectively shut the Strait of Hormuz, a waterway that carries about a fifth of the world’s oil and liquefied natural gas flows. That disruption has raised fears of stagflation - the combination of high inflation and weak growth - and triggered broad selling of risky assets while lifting demand for the U.S. dollar.
Gold, typically regarded as a haven asset in times of geopolitical stress, is on track for its largest monthly drop since 2008, falling roughly 16% over the period. At the same time, U.S. Treasury yields have risen by 46 basis points this month, the sharpest monthly increase since October 2024, underscoring the unusual cross-currents affecting fixed income markets.
For Rajeev De Mello, chief investment officer at GAMA Asset Management in Singapore, the shift has been stark. "There are very few risk-off assets," he said, noting that Treasuries, safe-haven currencies like the yen and the Swiss franc, and precious metals all have failed to provide reliable protection. "Since the war broke out, we’ve reduced equities because there’s no place to hide," De Mello added, describing longer team meetings and weekend work as the new norm.
Regional market impacts
Asian equities have borne much of the pain. South Korean stocks have slid about 13% this month, while Japan’s Nikkei is down roughly 9% over the same period. U.S. equities have held up somewhat better, registering a decline near 6% this month, a relative resilience that has drawn some investor reallocations into American markets.
Kenyon Tse, head of sales trading at UBS in Hong Kong, said traders had seen continuous net selling in Taiwan Semiconductor Manufacturing Co (TSMC), the region’s largest firm by market capitalization and a major point of exposure for global investors in Taiwan, every day since early March. Meanwhile, London-based Matthias Scheiber at Allspring Global Investments described trimming emerging market positions while tactically increasing U.S. exposure, though he cautioned pressure could intensify if global central banks follow Australia’s lead in hiking rates.
Trading desks and sleepless nights
Traders and portfolio managers described the personal toll of the market turbulence. An energy company trader who had taken positions betting on lower oil prices said the onset of the war produced a weekend of sleeplessness as those bets moved sharply against the firm. That trader, who spoke on condition of anonymity because they were not authorized to comment publicly, called the following week highly stressful, characterized by sharp volatility and a surge of internal meetings.
For wealth managers the strain stems from client-facing responsibilities. Kenneth Goh, director of private wealth management at UOB Kay Hian, said he has experienced near sleepless nights managing client portfolios through the shock. "It’s been non-stop," Goh said. "If I’m lucky, I sleep at midnight. If not, I sleep at 2, 3 or 4 a.m. But that’s the life I chose."
Corporate credit markets feel the heat
The turmoil has also complicated large-scale corporate financing. In New York, banks underwriting roughly $18 billion in debt for a $55 billion takeover of video game developer Electronic Arts were watching events unfold around a U.S. presidential deadline for strikes on Iran’s electricity grid that fell during late-stage marketing of the debt. Bankers on the deal prepared for the possibility that strikes on Iranian infrastructure could occur and that any escalation would likely push pricing higher on the debt. Two bankers familiar with the matter, who declined to be named because they were not authorised to speak to the media, said the banks were braced for potentially less borrower-friendly terms.
After a five-day postponement of the threatened strikes was announced on Monday by President Donald Trump, the banks were reportedly able to reduce borrowing costs on the debt’s approximately $6.6 billion cross-currency, high-yield bond portion. Later in the week, President Trump said he would pause threatened attacks on Iranian energy plants for 10 days until April 6, a move that helped calm immediate investor concerns around that financing package.
Constant monitoring and fatigue
Market participants stressed that the relentlessness of the moves demands near-constant vigilance. "You continuously need to watch, monitor and be a participant in the market and this obviously takes a toll in terms of your mental ability," said Mukesh Dave, chief investment officer at Aravali Asset Management in Singapore. Dave said he had experienced similar intensity during 2008 and the late 1990s Asian financial crisis but stopped short of declaring whether current conditions rival those episodes. "If this lasts for another week or so, then we’ll see," he said. "You can’t afford to make mistakes, there is zero tolerance for mistakes."
Conclusion
As the conflict in the Middle East continues to drive rapid and wide-ranging market reactions, investors and financial institutions are adjusting exposure, shoring up risk processes and contending with higher operational demands. With few reliable safe havens, elevated oil prices above $100 a barrel and notable moves across equities, bonds and commodities, the market environment remains tense and uncertain. Many market participants say that for now the priority is reducing exposure enough to manage risk and preserve the ability to make clear decisions amid significant stress and disrupted market functioning.
Key points
- Geopolitical escalation from joint U.S.-Israeli strikes on Iran and Tehran's response have driven a broad market selloff, lifting oil above $100 a barrel and pressuring multiple asset classes.
- Traditional safe havens are under strain - gold is down about 16% this month and Treasury yields have climbed 46 basis points, complicating risk management strategies.
- Corporate credit deals have been affected; banks underwriting roughly $18 billion for a $55 billion Electronic Arts takeover closely monitored geopolitical deadlines and adjusted pricing on a $6.6 billion portion of the debt.
Risks and uncertainties
- Duration and escalation of the U.S.-Israeli conflict with Iran - continued fighting could further disrupt oil and LNG flows through the Strait of Hormuz, exacerbating inflation and growth risks.
- Breakdown of traditional risk-off instruments - if Treasuries, safe-haven currencies and precious metals continue to underperform, investors may struggle to find effective hedges across portfolios, affecting equities, bonds and commodities.
- Potential for tighter financing conditions - renewed market stress could push up pricing on corporate credit and complicate large debt financings, impacting corporate acquisitions and refinancing activity.