9 March 2026

 

Key takeaways:

  • Share markets were mixed over February.
  • The US Supreme Court ruled President Trump’s tariffs exceeded his power.
  • Bubbling tensions in the Middle East escalated, with the US and Israel commencing a coordinated attack on Iran.

 

Below is an in-depth review of financial markets over February 

Global share markets1 ended February up 1.5% (all returns are in local currency unless otherwise stated). It was an eventful month; however, the build-up and clear escalation in geopolitical tension that unfolded Saturday 28 February attracted the most headlines. On this day, the US and Israel commenced a joint military operation, with air and missile strikes on Iran. The reasoning given for the strike by the US was to eliminate imminent threats by the Iranian regime. Iran responded by targeting Israel and some US military bases in the Gulf. While the onset of war in the Middle East did not impact returns in February, it has unsettled investors seeing a pullback at the beginning of March.

We believe the most appropriate action during any period of heightened uncertainty, whether due to policy change, political noise or geopolitical tensions, is to maintain:

  • Focus on your long-term investment goals; and
  • A well-diversified portfolio across different regions, sectors and styles.

Portfolios that are well-diversified, such as the MAS Funds, should be more resilient to localised shocks. History has shown that following geopolitical events, the initial negative reaction is short-lived. Share markets generally recover.

Geopolitical Events and Equity returns

Setting aside near‑term geopolitical risks related to the Middle East, it was a modestly challenging month for the US Share market2. US shares were pulled lower by concerns over artificial intelligence (AI) related capital spending and potential AI disruption concerns. Despite some relatively strong earnings announcements and forward-looking guidance, the technology sector produced a negative return over the month. Market leadership shifted towards smaller cap companies, with the S&P MidCap Index returning +4.1% for the month. Adding to investor uncertainty was the US tariff ruling. The US Supreme Court ruled that President Trump exceeded his power by imposing most of his tariffs without clear Congress authorisation. This prompted the White House to use alternative legal avenues to reinstate the levies, placing a temporary 10% levy on imports, while threatening to increase them to 15%. This did not sit well with most of the US’s trading partners.

European shares extended a strong start to the year, recording their second consecutive month of strong gains. The European share market3 hit record highs during the month, eventually ending 3.9% higher over February. All sectors were positive, except for financials. Strong earnings results fuelled the rally, while markets received a brief boost from the Trump tariff ruling in the US. In February, both the European Central Bank (ECB) and the Bank of England (BoE) left interest rates unchanged. The ECB took a calm, wait‑and‑see approach, while a close vote at the BoE hinted that UK interest rates could start coming down later in the year.

Australian4  and New Zealand5 share markets rose in February, gaining +4.1% and +2.2%, respectively, with the former hitting a new all-time high. I, the small-cap6 rally took a breather, with the large cap S&P/ASX 20 Index returning nearly 8%, while the MidCap 50 Index ended flat. In New Zealand, the new Reserve Bank Governor, Dr Breman, oversaw her first Official Cash Rate (OCR) decision. As expected, the Committee left the OCR unchanged at 2.25%, with “policy likely to remain accommodative for some time”. While acknowledging recent improvement, it was noted that the economic recovery was at an “early stage”. Notably, the Committee was “confident” that inflation would return to the target midpoint over the next 12 months.

Global bond yields generally trended down (bond prices move in the opposite direction as yields) as central banks kept rates unchanged and favoured a supportive rhetoric. The ongoing tension in the Middle East led investors to favour safe‑haven assets like bonds, which helped support bond prices and pull yields lower.

The differing fortunes of various market indices are illustrated in the chart below.

Returns of selected major markets to 28 February 2026

Note: Returns are in local currency terms.

The Outlook

Beneath a calm exterior, markets were anything but quiet in February, with returns at the index level masking powerful crosscurrents and gyrations underneath. While some major headline equity indexes went sideways, many individual stocks and sectors have experienced large double-digit moves, both positive and negative.

Several factors are at play: stronger confidence in the global macro picture has investors shifting towards cyclical sectors, the AI discussion has turned to capital spending surprises and disruption risks and high valuations and crowded positioning have left little room for surprises.

Recent Middle East events add a new source of uncertainty. Historically, the impact of geopolitical shocks on markets fades quickly, but much will depend on the length and severity of any energy market disruption. Our lead investment manager, JBWere, are assuming something short-lived, but risks clearly exist.

Will recent market rotations and meaningful stock dispersion persist? JBWere’s answer is nuanced, but there are reasons to think it may have further to run. Falling correlations and elevated dispersion often persist once they begin, and while the AI narrative is not reversing, it is evolving. Some key longer-term questions around disruption remain tricky to answer, which will likely keep volatility elevated.

While the geopolitical situation remains fluid and will likely dominate the focus in the immediate term, JBWere has not made any changes to its macro views at this stage. Despite the uncertainty and turbulence within markets, the economic cycle remains intact. That is important.

That said, they are on high alert for what could alter that. Beyond the obvious of a sustained oil supply shock (which is not their base case), they’re watching credit conditions and labour markets. Funding conditions for some AI disrupted sectors have tightened, and if AI proves truly transformative, it will displace workers. The true economic impact will depend on how quickly these disruptions unfold.

For investors, there are a handful of implications. Diversification is doing its job, and it remains an important focus, especially in the face of geopolitical uncertainty. Volatility is likely to remain elevated, but we see that as an opportunity rather than something to fear. And the evolving AI landscape, as important as it is, needs to be respected.

We have useful online tools to help you:

If you decide to change your Fund after reviewing your risk profile or meeting with a MAS Adviser, you can make a switch via the MAS Investor Portal, or alternatively you can complete an investment strategy change request form. There is no fee for switching. Links to the relevant forms are below.     

You can see weekly updates on fund unit prices and returns on our website.

1 As represented by the MSCI All World Country Index.
2 As represented by the S&P 500 Index.
3 As represented by the Euro Stoxx 600 Index.
4 As represented by S&P/ASX 200 Index. 
5 As represented by S&P/NZX 50 Index.
6 As represented by S&P/NZX 50 Index.

This article is of a general nature and is not a substitute for professional and individually tailored advice. No party guarantees the return of capital or the performance of investment funds. Returns indicated may bear no relation to future performance. The value of investments will fluctuate as the values of underlying assets rise or fall.

MAS is a financial advice provider. Our financial advice disclosure statement is available by visiting mas.co.nz or by calling 0800 800 627.   

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