Global equity markets are continuing to display remarkable resilience despite rising geopolitical uncertainty in West Asia, as investors increasingly focus on the long-term promise of artificial intelligence and technological innovation rather than short-term disruptions from war and energy shocks.
Speaking to ET Now, market strategist William Lee from Global Economic Advisors said investors remain convinced that the ongoing conflict will remain limited in duration, allowing markets to concentrate on the opportunities emerging from the next phase of technological transformation.
“It is a strong consensus among market participants that the war is going to be a short one and that consensus has held throughout this period even though there have been setbacks and some delays in the negotiation,” Lee said.
He added, “We have clearly seen the market reaction that the markets are much more focused with the post-war era than they are with the war itself.”
While countries across Asia, including India, have faced pressure from supply shortages and rising commodity prices, Lee noted that investors continue to believe the
United States and Europe remain firmly positioned to benefit from the accelerating AI revolution.
“Europe and the United States remain fairly well on its way toward implementing the AI revolution, toward implementing technology, and toward implementing the kind of things that will lead to higher profits and that clearly is driving the markets,” he said.
However, Lee cautioned that investors are closely monitoring the upcoming meeting between former US President Donald Trump and Chinese President Xi Jinping, which could shape the next phase of the US-China technological rivalry.
“Everyone is on edge waiting for the results of the Trump-Xi meeting that is to be held to see where it is that China and the US will be laying out the strategic battleground,” Lee said. “I think that is probably of more concern now for the markets than the energy crisis or the war in Hormuz itself.”
Inflation Concerns Remain Contained
Apart from geopolitical risks, investors are also watching inflation data closely, especially as US bond yields continue to move higher ahead of the latest consumer price index readings.
The benchmark US 10-year bond yield has climbed toward 4.4%, reflecting concerns around elevated energy prices and supply disruptions. Yet Lee believes markets are distinguishing between a temporary rise in prices and a sustained inflation spiral.
“Well, the inflation versus price level shift is something that has to be very carefully distinguished,” he explained.
“Right now, the bond markets are priced in a price level shift — that is the energy prices and all of the shortages due to the strategic commodities is pushing up the cost of production. But it has not convinced the markets that inflation itself is going to be unanchored.”
According to Lee, long-term inflation expectations have risen only modestly, suggesting investors still believe central banks can keep inflation under control.
“The 5-year, 5-year breakevens have shifted up but they have gone up by about a quarter to half a point depending on where you look on the term structure and I think that seems to be the limit of the rise in inflation that is being priced in,” he said.
Instead, he believes investors remain far more focused on productivity gains and identifying which sectors and companies stand to benefit the most from the AI-driven transformation underway globally.
A Barbell Strategy Across Asset Classes
On the question of asset allocation, Lee described current market positioning as a “barbell strategy,” with investors concentrating on both high-growth equities and select commodities linked to strategic technologies.
“It is a barbell strategy in many ways that the markets have really focused on the equity markets and specific commodities,” he said.
He pointed to rising investor interest in rare earths and technology-linked commodities, as the race for AI dominance intensifies between the US and China.
At the same time, Lee expects capital flows to continue favouring the United States over emerging markets due to America’s leadership in artificial intelligence and innovation.
“The overall sense of where dollar flows are going to be going and where investment flows are going to be going, they will continue to come out of emerging markets and toward the United States because the United States has still proven to be the centre of this AI revolution and the centre of this technological innovation,” he said.
Still, much of the market’s future direction may ultimately depend on the evolving relationship between Washington and Beijing.
Lee said investors are particularly watching whether China can secure broader access to American technology and expand the global adoption of Chinese AI applications.
“The key will be whether China’s President Xi will be able to extract a deal with President Trump whereby they will get their hands on more American technology,” he said.
“They already are trying to sell their AI models and their applications on a global level, but the key will be the US market because the synergies that could come from a US-China deal of that sort would be just enormous.”
Even so, Lee acknowledged that deep mistrust between both nations continues to define the relationship.
“Both sides are very distrustful with each other and continue to want to maintain their AI dominance in their specific spheres and so that tension will be where investors are going to have to decide how to place their bets,” he added.
