UniSuper chief investment officer John Pearce said the recent Middle East conflict had reinforced the view that geopolitical shocks do not always produce lasting damage to equity markets, with investors instead focusing on whether higher energy prices would be enough to materially disrupt global growth and corporate earnings.
In an investment update, Pearce said the 28 February 2026 strikes by the US and Israel on Iran, and Iran’s subsequent closure of the Strait of Hormuz, had triggered a sharp repricing in energy markets but a relatively short-lived sell-off in equities.
He noted the strait carried “20 per cent of the world’s oil, gas and 30 per cent of the world’s fertiliser”, underscoring the scale of the disruption risk.
Oil had already been climbing ahead of the strikes, rising from around US$65 a barrel in early February to about US$72, before surging to roughly US$120 in the immediate aftermath. Prices later eased to around US$100 following a ceasefire, but remained well above pre-conflict levels.
Despite that, Pearce said the US sharemarket had rebounded sharply after an initial fall of more than 9 per cent, and was trading about 2 per cent above its pre-strike level at the time of recording.
Pearce said the recovery suggested markets were not assuming a full resolution to the conflict, nor a rapid return in oil prices to earlier levels, but were instead concluding that the shock was unlikely to meaningfully derail the broader earnings outlook.
“I think a more likely interpretation is this—even if oil stays elevated, even if this conflict is not going to be resolved sometime, it’s not going to be enough to derail global growth,” he said.
“In particular, it won’t be enough to derail the growth in corporate profits that are being driven by investment super cycles. We’re talking about super cycles in AI, data centres, the energy transition, infrastructure.”
That interpretation was also reflected in measures of market volatility. Pearce said the VIX index, often used as a proxy for investor fear, rose far less sharply during the latest conflict than during the spike seen around ‘Liberation Day’ 12 months earlier, suggesting investor anxiety had remained comparatively contained.
“We see nowhere near the same level of fear, and in fact as we speak today, that fear has all but dissipated,” he said.
While equity markets had largely looked through the geopolitical shock, Pearce said bond markets had been more focused on the inflationary implications of higher energy costs.
He said rising bond yields, which implied falling bond prices, showed fixed income investors were more concerned about inflation than about a growth slowdown, making the inflation trajectory the more important signal for asset markets from here.
“Well, this is the opposite story. Bond yields have risen (so bond prices have fallen) because the bond market is more worried about inflation than a slowdown in growth,” Pearce said.
“This is important going forward because I believe it’s the course of inflation that will ultimately determine the course of the share market, and policy will really make a difference here.”
Pearce said central banks appeared to be showing greater discipline than during the inflation shock that followed the pandemic, pointing to paused rate-cutting cycles and some central banks, including the Reserve Bank of Australia, moving back towards tightening.
“We’ve seen a pausing of rate cutting cycles, and we’ve also seen some central banks, like the RBA, getting into hiking mode,” he said.
However, he said he was less confident governments would show similar restraint, warning that policy responses would be critical in determining whether supply-driven inflation became more entrenched.
Pearce also used the update to highlight member behaviour during the recent volatility, revealing that UniSuper members had shifted about $1.4 billion out of growth options and into more defensive settings such as cash.
About $300 million had since moved back into growth options, but he said a substantial amount remained on the sidelines and had already missed part of the rebound in risk assets.
“During the recent turmoil, we did have a lot of switching out of our growth options into defensive options such as Cash. It was actually about $1.4 billion in total,” he said.
“About $300 million has since moved back but that means there’s still a lot of money sitting on the sidelines. It’s missed the recovery.”
On fund performance, Pearce said UniSuper’s flagship Balanced option had returned about 6.6 per cent financial year to date, leaving the door open to another strong year after three consecutive years of double-digit returns.
He also said the Sustainable Balanced option had underperformed its standard equivalent over the short term, largely because its exclusions left it underweight the materials and energy sectors, both of which had outperformed during the recent commodity-driven rally.
Pearce said the episode had reinforced several long-standing portfolio lessons, including that cash remained the most reliable short-term haven during acute market stress, but that moving to the sidelines could come at a significant long-term cost if investors missed the market’s strongest recovery days.
“I’ll finish on my favourite, most important lesson: time in the market beats timing the market.”
