Charlotte de Kerpoisson:

Hello and welcome to this podcast by BNP Paribas Wealth Management. My name is Charlotte de Kerpoisson. April was the month of contrasts. On the one hand, the Strait of Hormuz remained closed to shipping, and oil prices remained over 50% above pre-conflict levels. As a result, we expect higher inflation and lower growth globally over the remainder of 2026. On the other hand, stock markets have benefited from a strong Q1 reporting season and rising earnings estimates. Both the US and the emerging markets have rallied to new all-time highs over the month. To discuss this topic in more detail, I'm joined by Edmund Shing , Global Chief Investment Officer. Hello, Edmund.

Edmund Shing :

Hello, Charlotte.

Charlotte de Kerpoisson: 

Why are stocks back at their highs while oil prices remain elevated?

Edmund Shing :

So this is the key question. Even we have been surprised by the strong reaction of stock markets over the last month. Certainly, what we have seen is over the month of March, since the beginning of the conflict, we did see a drawdown in financial markets, particularly in stocks. But we have seen more than that recovered over the month of April, and as we move into May, as I said, back to all-time highs, and again helped by very strong results for the first quarter, particularly in the US, but even in Europe as well, which is leading to higher earnings growth forecasts for the rest of this year. So quite clearly, the impact from the Iran conflict, if anything, has not been negative on earnings for companies, but rather positive. And if we look to other asset classes, clearly such as commodities, we still see new all-time highs being reached. So overall, what I would argue is that stock markets are pricing in today high probability of a de-escalation of tensions in the near future, of the resumption of marine traffic through the Strait of Hormuz, and therefore a progressive re-normalisation, particularly of global energy markets.

Charlotte de Kerpoisson:

How bad is oil demand destruction, Edmund, and how is this impacting the global economy?

Edmund Shing :

Well, there's no doubt that with oil prices over 50% higher today than they were before the beginning of this conflict in Iran, there has been an impact on the economy and on particular for energy demand. Now the most obvious example of this can be seen with airlines. The price of kerosene or jet fuel has doubled, particularly in regions such as Asia, because a lot of refined jet fuel comes directly from the Gulf, and of course it's that supply that is currently being interrupted. Now with jet fuel at twice the normal price, airlines are confronted with a situation where many of their routes, which were profitable at the old price, and now unprofitable at the new much higher price, so they are reacting by cutting back the number of flights that they run in order to Conserve energy, to conserve fuel, and to focus on only the profitable routes, while cutting the unprofitable routes. So that clearly will lead to demand destruction, because we'll have fewer flights. Equally, we can see in Europe that there has already been reaction on the part of households and the consumer, both in terms of driving less, but also in terms of switching their car buying preferences even more towards battery electric vehicles and hybrid vehicles. And thirdly, in terms of electricity generation, both in Europe and Asia, we are seeing an increasing move away from natural gas generation towards more renewable, more nuclear, and other sources such as hydro. So clearly, even the demand for natural gas structurally will go down. So there is an element of demand destruction, which is perhaps shorter term in former airlines, but also more structural in terms of the shift in electricity generation globally.

Charlotte de Kerpoisson:

Amidst AI investment euphoria, how can we participate in the AI theme?

Edmund Shing :

 Yes, the AI theme has been particularly powerful once again in recent months. This is being most evident in the share prices of semiconductor makers, particularly memory chip makers such as Micron in the US, Samsung and SK Hynix in South Korea, which have powered ever greater new highs. At this point, we had previously talked about buying picks and shovels, such as the semiconductor makers to play AI. That has already played out largely, and now we would focus on what we considered to be the most critical bottleneck in AI demand, which is really much more the front end, both in terms of energy demand as in the electricity generation and transmission necessary to power the data centres, 24 hours a day, 7 days a week, which requires greater investment in the energy networks and also of course the raw materials. We can talk about copper. We can talk about rare earth metals necessary to power to make the semiconductor chips, to make the cables that are then implanted into these data centres. So very much, we focus on energy demand and raw materials at this point to play indirectly this AI theme.

Charlotte de Kerpoisson:

 Will we see higher central bank interest rates soon?

Edmund Shing :

Well, to be honest, we hope not. In the US, with the Federal Reserve, we are quite confident that even with the switchover of Fed president from Jerome Powell likely to Kevin Washington in the next couple of months, we believe that the Federal Reserve will stay on hold and will not raise interest rates. Because remember, they have a balance mandate; they have to balance growth and inflation. So on the one hand, growth is probably going to be a bit lower, inflation a bit higher, but overall, we believe that the Fed can stay on hold at the current level of interest rates. In contrast, the argument for the European central bank and Bank of England remains more difficult. Because they have a more explicit inflation mandate, only inflation is going to be higher over the next few months. So the real question for European central banks is very much: Will inflation remain higher as we go into 2027 , or is this a temporary bump in inflation that will then recede in 2027 ? We believe that energy prices should actually start to go back down well before the end of this year, even with the current disruption to the Strait of Hormuz, and that by 2027 you should see energy inflation being negative on a year-on-year basis, and that we believe should allow European central banks today to stay on hold a bit longer. But really, we believe that the events of the next few weeks will be critical. The Strait of Hormuz needs to be reopened, and energy prices need to start falling soon, or else there will be greater and greater pressure for European central banks to raise rates soon.

Charlotte de Kerpoisson:

 What are your three favourite investment ideas?

Edmund Shing :

So to summarise, where would we invest today with high conviction? I think the energy theme is very important, so focusing very much on energy infrastructure, oil and gas pipelines, for instance, remain a very interesting play in North America, first of all, and you can play that buyer for instance ETFs and funds. Secondly, again on the energy theme, one area I particularly like related to renewable energy is industrial battery storage. So I like lithium battery technology funds and ETFs because I believe industrial battery storage is growing very quickly, and that demand will continue to grow thanks to the conflict in Iran. And thirdly, I would still stay with commodities, even though commodity indices have reached another new all-time high, exceeding their 2022 high. We still believe there's further potential in commodities, particularly in both precious and industrial metals, going forwards.

Charlotte de Kerpoisson:

 Thank you, Edmund, and thank you to our audience for following this podcast. Please like, share, and subscribe to our weekly podcast, and visit our website for our investment themes for 2026 and strategy research. Goodbye.