In March, the escalation of tensions in the Middle East triggered a sharp reassessment of geopolitical risk across global markets. The positive trends observed at the start of the year were quickly reversed, leading to a sharp rise in oil and gas prices, a resurgence in inflation expectations, and a broad-based sell-off across asset classes.

March was a challenging month for markets: both equities and sovereign bonds came under pressure, while commodities emerged as the clear outperformer. This geopolitical shock materially altered market dynamics, neutralizing traditional diversification mechanisms and subjecting prevailing investment strategies to the inevitable impact of global risk repricing.

Equities: Global equity markets experienced a broad decline, driven by the sharp increase in oil prices and the resulting rise in stagflationary risks for the global economy. U.S. equities declined, but remained relatively more resilient compared with other developed markets. The decline in the U.K. market was partly offset by its commodity exposure.

In Europe, the correction was more pronounced amid deteriorating growth prospects and elevated energy prices, which were reflected in broadly negative regional performance. Japan also posted a significant decline, as investors engaged in profit-taking. Emerging markets underperformed as well, primarily due to weakness in Asian markets.

Government Bonds: Developed market sovereign bonds delivered negative returns, driven by rising inflation expectations and market expectations of tighter monetary policy from central banks. The U.S. market showed relative resilience, in contrast to Europe, where rising yields and hawkish central bank signals led to more pronounced pressure.

Corporate Bonds: The corporate credit market experienced a risk repricing, reflected in wider spreads, particularly in Europe, across both investment grade and high yield segments.

Given market conditions and our outlook, we increased the allocation to foreign money market funds in the portfolio. The weight of foreign equities declined from 35.1% to 32.6%, driven by cash inflows and market performance.

In the local financial market, geopolitical developments in the Middle East led to an upward shift in the yield curve for Armenian government bonds in the medium- and long-term segments during March, which also had a negative impact on the fund’s performance.

Within local investments, we increased the allocation to deposits from 24.2% to 24.8%.

In the foreign exchange market, the Armenian dram appreciated against the euro and British pound by 2.83% and 1.99%, respectively, while the USD/AMD exchange rate remained broadly unchanged.

The decline in the fund’s foreign currency asset weight from 35.3% to 34.2% was attributable to cash inflows.

In March, the fund returned -3.5%, reflecting the decline in foreign investments and local government bond prices.