During the first quarter of 2026 the Strategy outperformed the MSCI Emerging Markets Index by 3.6%.
Outperformance was driven by our exposure to Korea, as well as stock selection in China. The underweight to the Indian market, while reduced, has also continued to be a tailwind.
Following the outbreak of the Iran conflict, we have unsurprisingly seen some drag on performance from our remaining exposure in the UAE, as well as interest rate sensitive markets such as South Africa that have seen cost of capital increases.
Over the quarter and during March we have continued to take profits on AI hardware exposure, in particular in Korea. While this still forms a significant portion of the portfolio, with Taiwan and Korea being the greatest recipients of the cash gushing into AI infrastructure, we are mindful of the medium-term risks to that bonanza. We remain relatively cautiously positioned in the Middle East, with below-Index exposure to the region for now.
Raising cash has allowed us to rebuild exposure in smaller markets such as Thailand and Poland where we are finding high quality companies at very reasonable valuations. This includes stocks that have historically traded at excessive multiples but have now been neglected by investors – especially in the consumer space. Even in the Indian market we see some of the highest quality banks trading near historic low valuations.
In recent years we had been reducing our exposure to oil production as we saw prices increasingly capped by growing North American supply with demand growth finally beginning to fade as electrification of transport progressed. Instead, we have had exposure in the power generation and storage space – in particular in China, which has become an undisputed leader in renewable technology.
Events in the Gulf have forced us to review our mid-term assumptions on hydrocarbon prices. Aside from the obvious immediate supply shock of removing 10-15% of global production from the market, the crisis forces an accelerated re-examination of many countries’ structural dependence on imported fossil fuels. Even if the Strait of Hormuz re-opens without additional tolls and security costs, there will probably be a strategic premium placed on non-Gulf supplies. Damage to Qatari LNG facilities should also keep global natural gas prices high, as long as the US does not have sufficient export capacity for its surpluses and AI-driven demand continues growing.
Although we have not been willing to aggressively chase oil stocks while they are in the headlines, we have been adding somewhat to Latin American producers. More importantly, we have added to Chinese battery and other electrification-related stocks that are now globally dominant in this high growth sector. Political noise has meant that their valuations have remained reasonable, giving us the opportunity to own them.
As we write this, there is a ceasefire of sorts in place, and the Strait of Hormuz remains blockaded. Although the warring parties present seemingly irreconcilable demands, both the Iranian and US leaderships are enthusiastic fabulists with tenuous regard for reality. This could allow for an agreement where all sides declare victory, despite contradictory facts, and allow gradual restoration of most energy flows. The rest of the world will likely be sceptical about the durability of such arrangements and continue investing aggressively in alternative sources of energy. Continuous innovation in renewable energy and storage is resolving cost and intermittency issues already. It is hard to imagine a situation where energy supply chains simply go back to ‘normal’ in the medium-term.
On a final note, it is hard to ignore the reputational damage Gulf states have taken from a security perspective, despite having done everything possible to shield themselves from the conflict. In the short-term, economies dependent on tourism and property development will suffer even if the ceasefire turns into some kind of peace. Over the medium- to longer-term, there is a good chance that their undisputable attractions will outweigh the memory of the conflict and there may be opportunities to rebuild exposure on any extended weakness.
