Executive Summary

• Q1 2026 was marked by a sharp shift in global market conditions, driven by a major geopolitical escalation in the Middle East.
  
• The onset of military conflict involving Iran in late February led to disruption in the Strait of Hormuz, a critical global energy transit route. This significantly reduced oil and LNG supply, triggering a sharp rise in energy prices, renewed inflation concerns, and increased volatility across financial markets.
  
• The negative impact of Hormuz’s closing & GCC’s oil infrastructure destruction and therefore, global inflation, is expected to be long lasting even if assuming a permanent ceasefire were to happen soon. The truth is that there are more than 80+ energy facilities in the GCC damaged by Iran thus far. According to Rystad Energy, this is a structural destruction of the world’s most critical infrastructure.
  
• As such, the optimistic timeline expected for the normal prior-war GCC driven crude oil throughput to flow normally would be multiple quarters not months.
  
• Prior to the Iran war’s onset, U.S’ A.I growth cycle driven equity rally was already toying with a factual ROI challenge with a heating competition and potential margin compression in both hardware and software.
  
• Our enhanced investment framework is precisely aimed to better navigate changing market conditions and to deliver more better and consistent positive outcomes over time.

Hormuz Closure: The Dominant Macro Risk Factor for 2Q 2026

The Hormuz Strait is effectively closed since early March (Operation Epic Fury, 28 Feb) that causes a shut-in of about 7.5 million barrels of brent crude oil per day in March and potentially rising to 9.1 million barrels per day in April, meaning a 20% of global crude oil supply is removed. This is also a larger crisis than the 1973/79/90 oil shock events.

As of now, brent crude oil remains above $90 per barrel post a collapsed peace talk with Hormuz’s blockade continues. The higher energy prices are already causing global inflationary pressure. Case in point, the U.S’ March CPI jumped +0.9% month-on-month while rate market is pricing-in no more interest rate cut for the rest of 2026 along with a looming stagflationary regime.

Chart 1: Brent crude oil price ~ hawkishly > $95 per barrel

Chart 2: Global Inflation-Linked Index ~ charging high since Iran war started

U.S. A.I. driven rally is coming of age…an imminent standalone risk

The Magnificent7 collectively represents 32.5% of the S&P 500 as of March 2026—up from 12.5% in 2016—creating an extraordinary concentration of index risk. Critically, communication services and information technology sectors are trading at price-to-sales ratios near or above tech bubble peaks. The CAPE ratio for the U.S. market exceeded 40 for the first time since the dot-com crash.

Global yields started to move up significantly post the Iran war in February and assuming no quick resolution to a permanent ceasefire, global yields are expected to continue its ascent to even higher levels.

The implication of a sustained higher yields means the financial market will be pricing-in a larger risk premium for both fixed income and equity investments. At the moment, Nasdaq100 is still trading at 23% above the mean valuation of its 10Y historical PE band, a valuation that is unlikely to have priced-in the Iran war related inflationary risk.

Chart 3: Nasdaq100 remains 23% above the mean valuation of its 10Y historical PE band.

Hyperscalers’ capital expenditure has reached an extraordinary scale. The five major hyperscalers—Google, Microsoft, Amazon, Meta, and Oracle—are collectively guiding toward approximately $500 billion in capex for 2026, up from $241 billion in 2024. This capex now represents an estimated 1.6% of U.S.’ GDP. As free cash flow comes under pressure from depreciation on these capex., the very margin expansion story that sustained premium multiples shall begin to erode.

Chart 4: Capex of major hyperscalers

Lastly, the Magnificent7’s projected earnings growth for 2026 stands at approximately 18%—the slowest pace since 2022 and a sharp deceleration from 36.8% in 2024. More glaringly, Nasdaq100 1Q 2026’s EPS growth is projected at 11% yoy only! As the high double digits EPS growth was a key fundamental factor spurring the A.I. rally, a reversal of this trend is likewise presenting a continuous valuation risk in the coming quarters.

Concluding Remark

The convergence of a generational energy supply shock coupled with a stretched A.I. valuations approaching a capex reckoning create a macro environment that demands defensive positioning and rigorous risk management.

We recognise that performance matters deeply to our clients. And, with our enhanced framework now in place, we are focused on deploying capital more systematically with a clearer conviction.

With our strengthened investment approach, we envisage to better navigate changing market conditions and to deliver more consistent positive outcomes over time.

We appreciate your continued trust and support.

William Yii
20 April 2026
CIO, CP Global Fintech Solutions.

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