Financial markets are currently in a state of flux after the US launched “Operation Epic Fury”, after the markets closed for the weekend on 27th February. The joint operation with Israel has resulted in Iran lashing out at targets across the middle east, creating turmoil for travelers and trade alike. With the Straits of Hormuz effectively closed to traffic, crude oil prices have responded by spiking from the mid 60’s to over $80 per barrel while European gas prices have spiked from around €30 to over €50/MWh.
With prices so volatile any commentary surrounding the performance of financial markets in February seems largely redundant. Nonetheless, February was another positive month for global equities (+0.8%), extending their run of positive returns to 11 months.
By contrast US markets were weaker with the S&P500 (-0.8%) dragged down by the Software & Services sector which fell a further -9.8% on AI fears.
The climate of uncertainty was heightened after yet more changes to US trade policy with the Supreme Court striking down some of Trump’s tariffs, raising the prospect of significant refunds to importers. The administration responded by introducing a temporary 10% global tariff on imports and signalling plans to increase the rate to 15%.
Asian equities move centre stage
Asian equities were some of the standout performers in February with the Korean KOSPI gaining 21% in the month and 180% in the last 12-months alone. Much of the gains can be attributed to the global AI boom and soaring semiconductor demand with leading chip manufacturers Samsung Electronics and SK Hynix gaining more than 250% and 400% respectively over the last year.
Japanese equities also rallied strongly in February, with the TOPIX rising 10.5% during the month and roughly 50% over the past 12 months, making Japan one of the best-performing major equity markets globally.
Sentiment was supported by Prime Minister Sanae Takaichi’s decisive victory in the 8 February snap election, which delivered a two-thirds parliamentary majority for the governing coalition. The result strengthens the government’s ability to pursue fiscal stimulus and structural reform.
At the same time, inflation appears to be stabilising. Headline CPI slowed to around 1.5% year-on-year in January, while Tokyo core inflation eased to 1.8% in February, close to the Bank of Japan’s long-standing 2% target.
Pressure mounts on Private Equity Firms
Listed private equity managers have come under significant pressure in recent months, with shares of firms such as Blackstone, KKR, Apollo, Ares, TPG and Blue Owl falling sharply from their recent highs.
The sell-off reflects growing concerns about slowing deal activity, delayed exits and higher financing costs, which have weighed on earnings expectations across the sector. Investors have also become increasingly cautious about risks building in private credit markets, a key growth area for many alternative asset managers.
Drawing comparisons with the pre-GFC period JPMorgan CEO Jamie Dimon recently warned that risks may be building beneath the surface, “Unfortunately, we did see this in ’05, and ’06, and ’07… the rising tide was lifting all boats, everyone was making a lot of money, people were leveraging to the hilt.”
However, the market reaction may be overdone, at least as it relates to private credit with Morningstar noting that actual losses remain relatively low, with no discernable uptick in risk.
If you’d like to discuss the market shifts discussed above, and how this might affect your portfolio or investment strategy, get in touch today.
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