Laura Cooper

Key takeaways

• The second and third-order effects of the Strait of Hormuz crisis are only beginning to materialise
• Markets have been complacent and are normalising to the conflict
• Geopolitical risk has shifted from episodic noise to a persistent feature of the investment landscape; investors who understand that distinction will be better positioned for what comes next

Revisiting the rulebook: Three months on

Three months ago, we argued that geopolitics had shifted from episodic noise to a structural force for markets. At the time, that was a framework. Today, it is evidence.

Bottom line up top 

Markets were resilient through 2025 not because the underlying order was intact, but because the consequences of its erosion were still unfolding. Investors were not positioned for a world in which assumptions built over decades – institutional credibility, alliance durability and the limits of political shock – would be tested simultaneously. Political change, we argued, moves faster than market repricing – until it doesn’t. The events of late February may have delivered that inflection point.

From risk premium to real disruption

The Strait of Hormuz crisis did not arrive without warning. Escalating Middle East tensions and the fragility of rules-based international frameworks had been structural risks insufficiently priced by markets. What followed confirmed that assessment with force. The conflict has triggered the largest supply disruption in the history of the global oil market, with flows through the Strait collapsing from around 20 million barrels per day, Gulf producers cutting output by at least 10 million barrels per day and Brent surpassing $100 per barrel for the first time since 2022.

The disruption extends well beyond energy with lasting implications: the Middle East accounts for at least 20% of all seaborne fertiliser exports and the crisis is reshaping supply chains in real time across aluminum, LNG, helium, and petrochemicals. More than 44,000 businesses across 174 economies had at least one shipment exposed as of mid-March. The second and third-order effects are only beginning to materialise.

Three fault lines, now visible

The events of the past three months have clarified three structural breaks:

• First, geopolitical risk has become structural rather than episodic. The U.S. continues to fundamentally reshape its economic and security relationships, pursuing a transactional approach and exposing fractures within traditional alliances. The Hormuz crisis is not an outlier; it is an expression of a broader shift toward boundary-testing.
• Second, Europe was inadequately prepared for a scenario in which U.S. support becomes conditional. Europe is heading toward energy scarcity pricing at a time when its strategic autonomy and rearmament plans are still taking shape.
• Third, the central bank playbook is constrained. The inflation impulse of the energy shock arrives simultaneously with a growth drag: a supply-side shock that conventional tools cannot address. A closure removing close to 20% of global oil supplies is expected to lower global real GDP growth by an annualised 2.9ppts in Q2/2026. Central banks cannot produce oil, and when faced with a stagflationary shock, the tools that address inflation worsen the growth outlook.

The investment implications

The case for geographic diversification, scenario weighting and selectivity within asset classes is stronger today than at the start of the year. In practice, we favour floating rate over fixed credit exposures, including senior loans and pockets of private credit over investment grade duration; energy and upstream assets across equities; hard assets and real return profiles; and we remain constructive, albeit selective, on EM sovereigns where strong external balances offer both diversification and carry where traditional haven assumptions are being tested.

An important portfolio consideration is also what markets are pricing, with complacency increasingly evident. Markets are normalising to the conflict, pricing a base case of partial resolution and gradual resumption of flows. Tail risks from a prolonged closure extending into Q3, further attacks on Gulf energy infrastructure, or escalation that draws in additional regional actors remain underpriced. Outcomes aren’t symmetric, and investors positioned for the base case are implicitly short optionality when it is most valuable.

Bottom line

The Strait of Hormuz crisis is not an aberration from the new geopolitical order – it is an expression of it. Markets are transitioning from a world where geopolitical risk was something to price at the margin, to one where it shapes outcomes. Investors who understand that distinction will be better positioned for what comes next.

By Laura Cooper, Global Investment Strategist and Head of Macro Credit

The post Revisiting the rulebook: Three months on appeared first on AdviserVoice.

Laura Cooper

It is no longer just about owning the winners. It is increasingly about avoiding the losers – those with business models most at risk of disruption. The transition started with digital businesses, yet the software selloff is spilling across asset classes – from heavy software exposure in private credit to pockets of public markets as AI disruption risks rise.

Last week, I had the opportunity to speak with several tech and software investors at Nuveen. One theme kept surfacing: investors are no longer asking ‘who benefits from AI?’ but ‘who gets displaced’. And the selloff is changing that opportunity set in real time.

Markets shooting (software) first, asking questions later

Software has been at the centre of the recent repricing. The rapid advance in large language models is changing the cost of building and delivering software, lowering barriers to entry and intensifying competition. This is challenging existing business models, driving a structural shift from subscription (Software as a Service) to consumption-based pricing, and raising questions about the future of the SaaS model itself.

At the same time, markets may be overestimating the speed of that disruption. Enterprises move slowly, workflows are deeply embedded, and switching costs remain high. Forward revenue multiples have compressed from roughly 10x to 4-6x for many software names, and while a re-rating was warranted, the selloff has been indiscriminate.

This is not a ‘sell all software’ moment – but presents an opportunity for security selection. The sector is experiencing necessary price discovery as the market distinguishes between companies with durable models with pricing power and those facing disintermediation.

Finding the winners among the losers

Our investors remain focused on frameworks to identify companies with demonstrable AI integration, strong network effects, and the flexibility to transition pricing models:

Winners: “Companies operating in categories with high determinism and customisation requirements are best positioned – think design software, vertical-specific solutions, and enterprise resource planning systems. At the vendor level, success favors those with strong data and workflow moats, and usage or outcome-based pricing models.”

Losers: “Service-oriented applications, and creative apps with low customisation needs are particularly vulnerable. Those with weak moats, seat-based pricing models, limited AI progress, and closed ecosystems face heightened disruption risk.”

Security selection, not just a software story

Equity markets tend to reprice first while other asset classes lag, creating a window where risk is reassessed. Yet spreads in parts of the broadly syndicated loan market have already widened by 100-150bps, particularly for issuers with heavier software exposure and more aggressive capital structures. Meanwhile, private credit has increasingly been a source of refinancing for capital structures that were of lower quality, creating pockets of risk in the asset class.

As valuations re-rate and equity cushions shrink, loan-to-value ratios rise, raising refinancing risk and creating less margin for error. While vulnerable issuers at the lower end of the credit spectrum might face refinancing challenges if private credit becomes constrained, the broader, higher-quality loan market should remain relatively insulated from direct spillover effects. And it remains to be seen whether private credit appetite for software will change, or they will continue to provide capital but at wider spreads.

Either way, dispersion is likely to increase not only across borrowers, but across managers focused on the durability of business models.

Big picture: where are the opportunities?

AI is not a bubble technology, but that doesn’t mean every AI bet will pay off. There are companies spending significantly on AI that likely won’t see a return. And the transition from focusing on eyewatering capex to the return on investment has already begun – large, scaled incumbents are investing aggressively not only to innovate, but to protect the moats they have already built with the winners still unknown.

From an opportunity standpoint, the infrastructure and cybersecurity subsectors carry the highest ‘perceived AI safety’. The former is underpinned by strong demand driven by data movement, storage, and analytics. And as AI expands the ‘attack surface’, incremental spending in cybersecurity is likely to remain resilient in this relatively unique part of the market.

In contrast, the application layer is most exposed. This is where the user interface sits, where disintermediation risks are highest, and where the shift from SaaS will be felt most acutely.

Still early stage of AI supercycle

For investors, the passive exposure to software is no longer the same bet in was three years ago. The index-level trade has become a stock-picking story. In credit, the same logic applies where selection and credit differentiation matter more now than in recent years.

The AI investment thesis hasn’t disappeared – it’s just evolving. The recent selloff reflects a repricing within a transformative AI cycle, and periods like this tend to create fatter tails: more winners, but also more losers. The opportunity lies in identifying this flip: who will win versus who will lose.

By Laura Cooper, Managing Director, Head of Macro Credit and Global Investment Strategist

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