Iran deal reduces risks, but uncertainty remains

The macroeconomic outlook is solid. In the US, economic growth continues to be supported by the AI investment boom, which we expect to remain a key driver of growth. Furthermore, the reopening of the Strait of Hormuz reduces the risk of severe supply shortages and supports the outlook for continued economic growth across regions.

That said, the normalisation of energy markets is expected to be gradual. Oil production will take time to ramp up after the disruption, and inventories have been drawn down to low levels and need to be rebuilt. In addition, shipping showed an initial improvement following the agreement but has since slowed again, reflecting ongoing uncertainty. Therefore, supply is likely to remain tight relative to demand, particularly over the coming months. This means that central banks will keep a close eye on inflation numbers. In Europe, we expect the European Central Bank (ECB) to hike the policy interest rate twice in 2026, while in the US, the Federal Reserve (Fed) is likely to keep rates on hold and only consider a rate cut towards the end of the year.

For a more detailed analysis of the agreement and its implications for energy markets, we refer to the full article from ABN AMRO Group Economics.

Equities have been strong performers in recent months as earnings growth expectations have improved. The information technology sector, and semiconductors in particular, continues to benefit from the strong AI investment cycle.

Although we remain positive on the long-term prospects of the AI boom, we reduce the IT sector from overweight to neutral. Within the IT sector, we have had a preference for semiconductors. This sub-sector has experienced an incredible, parabolic run over the past few weeks. As a result, sentiment is stretched and volatility within the IT sector and semiconductors is increasing. We emphasise that the long-term fundamentals remain strong, supported by high earnings growth expectations and expanding margins. This could justify re-entering the position at a later stage. With the IT sector returning to neutral, we also close our underweight position in consumer staples and bring the sector back to neutral. The main reason is that the likely reopening of the Strait of Hormuz reduces a key source of pressure on energy, freight and input costs, improving the sector's margin outlook while preserving its defensive characteristics.

Regionally, we continue to prefer the US over Europe, while we recently downgraded emerging markets to neutral. The US benefits more from AI investment and is less exposed to energy price volatility. In Europe, tighter financial conditions are likely to weigh on activity as the ECB hikes rates further. At the same time, the broader cyclical recovery should continue, supported partly by stronger German fiscal spending. The focal point of this spending is the industrial sector, including the defence subcomponent, as Germany and other NATO allies move towards reaching NATO targets. We want to invest in sectors where capital is currently flowing. Therefore, we are overweight in the industrial sector.

Despite these supportive factors, we believe the risks and opportunities are balanced, resulting in a neutral view on equities. Equities have already experienced a strong rally. At the same time, geopolitical risks around the Middle East remain and could reignite the energy disruption. Therefore, we feel comfortable with a neutral stance on equities and a focus within equities on structural growth themes.

As inflation rose due to rising oil prices caused by the Iran war, investors demanded higher bond yields as compensation. However, after the announcement of the agreement between the US and Iran, longer maturity bond yields hardly moved. On the other hand, shorter maturity bond yields increased (US) and stayed elevated in Germany after central bank meetings. In Europe, investors price in additional ECB rate hikes. In the US, the new Fed Chair Kevin Warsh made his debut and both the Fed dot plot (projections) and Warsh sounded more hawkish.

This does not help bond investors who benefit from falling yields. At the same time, credit spreads are now close to historically low levels. This limits the attractiveness of high-return bonds as the compensation for taking on additional risk is limited. Therefore, we remain neutral on bonds as the higher yields make bonds more attractive than a savings account.

Higher bond yields and the anticipation of a resolution for the Iran war have put pressure on the gold price. However, the longer-term case for gold remains unchanged. Structural drivers, such as continued central bank purchases, are expected to support gold prices over time. In addition, gold has historically played an important role in portfolio diversification. These long-term tailwinds outweigh the short-term pressure we are currently seeing.

Update July: The agreement between the US and Iran has reduced immediate downside risks and provided relief to energy markets. However, the deal remains fragile, and important uncertainties persist, including the durability of the agreement and the role of other regional actors. Against this backdrop, we take profit in the IT sector and increase the consumer staples sector. We hold a neutral view on both sectors. Furthermore, we believe that a balanced portfolio with neutral positions in equities and bonds is best suited for the current environment. Finally, we use gold as a means of portfolio diversification and to generate returns from long-term tailwinds.

Richard de Groot 
Chair Global Investment Committee