Hope and the Fragility Beneath

Editor’s Note

Last week was a reminder that markets can hold two truths at once. The week rewarded optimists, punished those expecting further declines, and then delivered enough turbulence for both sides to claim some vindication, with the optimists still emerging stronger by the close. The S&P 500 ended a five week losing streak, rising 3.36% on the back of ceasefire speculation in the Iran conflict. But that rally was built more on diplomatic speculation than on confirmed progress. By Thursday evening, President Trump was threatening to bomb Iran’s power plants and bridges, leading oil to rise above $110 and forcing investors who had rushed back into risk assets earlier in the week to recalculate their exposure to a war that showed no clear signs of ending.

The primary story, however, is not just the bounce, but the fragility beneath it, with private credit adding to the market’s concerns. The industry’s semi-liquid promise is now being tested, and the market is beginning to treat recent gating as a factor that could substantially challenge the optimism seen in public markets.

Furthermore, the closure of the Straits of Hormuz is set to affect frontier economies like Kenya, where the true cost of the conflict has yet to arrive in the price of fuel. The rally was there, but the more important question is whether it is durable.

Global markets ended the week sharply higher, although the path was not remotely orderly. The rally was influenced primarily by shifting expectations around the Iran conflict, which has now entered its sixth week and remains the single most influential variable in short-term equity pricing.

The week opened cautiously as Iran attacked Middle Eastern aluminium producers, pushing commodity prices higher and keeping oil above $102. Sentiment then shifted decisively midweek after Iranian state media suggested that President Pezeshkian (Iran’s President) was open to ending the war with security guarantees, while the White House confirmed that talks through intermediaries were continuing. The S&P 500 recorded its largest single day gain since May 2025, rallying 2.91% on Tuesday, with more than three quarters of the index’s constituencies closing higher. Tech led the rally as investors rotated back into oversold large cap names.

By Wednesday, Trump was claiming that Iran had requested a ceasefire, while Brent briefly dropped below $100 for the first time since the conflict began. Then came the reversal. Trump’s Wednesday night national address pledged to hit Iran “extremely hard", and WTI surged nearly 10% on Thursday. The S&P 500 fell close to 1.5% before recovering some ground after Iranian state media reported Omani mediation efforts.

Beneath the geopolitical headlines, a more visible and potentially consequential stress is also building in private credit markets. Q1 2026 saw approximately $13 billion in redemption requests in private credit funds, with over $4.6 billion of investor capital trapped behind withdrawal limits. The strain became most apparent on April 2, when Blue Owl’s flagship private credit fund received requests to redeem 21.9% of shares and capped withdrawals at 5%. Apollo, Ares, BlackRock, and Morgan Stanley all instituted similar lifts.

These dynamics, particularly the fragility surrounding the Iran conflict and the liquidity stress emerging in private credit, could lead to further market declines if conditions worsen. The transmission mechanism is relatively clear. Persistently elevated oil prices would risk feeding inflation across global markets and reduce the probability of central bank cuts this year. In private credit, losses or continued redemption pressure could make investors more sceptical of private market valuations and lead to broader weakness across risk assets.

_{^{Here, we recommend reducing exposure to alternative asset managers with meaningful private credit exposure and favour adding to global banks that are more insulated from these pressures.}}

The Nairobi Securities Exchange delivered its first meaningful recovery week since the Iran conflict began. The NSE All Share Index rose 1.93%, the NSE 20 gained 1.79%, and the NSE 25 rallied 2.12%. The moves were constructive, but modest relative to the losses recorded in March.

What is likely to define market direction from here is whether inflationary pressure begins to show more clearly in the data, particularly through oil and food prices. One of the most important near-term signals will come from the Energy and Petroleum Regulatory Authority’s next fuel pricing guidance, with the new cycle set to begin on April 15. That decision should offer a more grounded indication of whether higher energy costs are beginning to transmit more meaningfully into the domestic inflation outlook.

Guidance from the Ministry of Agriculture on fertiliser will also be important, as it should help indicate whether input cost pressures are likely to build further and, in turn, feed into food prices over the coming months.

The fuel procurement fraud involving the Kenya Pipeline Company and senior energy officials added a governance dimension to the near term outlook. The Petroleum Principal Secretary, the KPC Managing Director, and the EPRA Director General were are arrested and subsequently resigned. While the arrests may have reduced some risk by showing a willingness by the administration to enforce accountability, they also underscore the vulnerability of Kenya’s fuel supply chain at a moment when global energy supply remains highly constrained

_{^{Here, we recommend watching select names that are overly discounted and could rally from here, with our preferred names being Equity Group Holdings and KCB Group.}}

_{Last Week’s Review}

Last week’s recommendation was Meta as a mean reversion call in oversold large cap technology. From the prior Friday close to the Thursday, April 2 close, Meta returned 9.27%. The gain reflected a rotation back into quality names that had become oversold. The move was supportive of the thesis and marked another week in which the direction of the call proved broadly right.

On the Kenyan side, our recommendation was to continue reducing equity exposure. The NSE All Share Index rose 1.93% and the NSE 20 improved 1.79%. In context, that rebound does not invalidate the defensive posture, but instead reflected a modest recovery by the market following the prior week’s selloff.

_{This Week’s Trade Ideas}

_{- Global Trade}

_{Microsoft (NASDAQ:MSFT), Meta Platforms Inc (NASDAQ:META), Nike (NYSE:NKE)}
We are extending last week’s single name thesis into a three stock basket spanning technology and consumer discretionary. The common thread is that all three names have seen trailing P/E multiples compress more than 15% below their two year averages, driven by broad risk-off positioning rather than company specific fundamental deterioration.

Microsoft trades at $371.76 on trailing P/E of 23.3x, Meta at $574.32 on 24.0x, and Nike at $42.71 on 25.0x. The basket provides sector diversification and reduces single name concentration risk. The thesis is that geopolitical risk premium currently embedded in these oversold names is excessive relative to their earnings quality. The primary catalyst is any confirmed progress toward de-escalation. The principal risk to the trade is a further escalation in the conflict, which would likely lead to a broader market selloff. Even with that, we continue to view the setup as asymmetric, with the prospective upside materially outweighing the potential downside.

_{- Kenya Trade}

_{Equity Group Holdings (NSE:EQTY), KCB Group (NSE:KCB)}
We use a similar logic as the global trade which is to invest in quality business trading at depressed valuations due to broad market risk aversion rather than business deterioration. Equity Group’s diversified East African revenue base provides a hedge against Kenya specific macro pressure, while KCB’s shielded deposits offer earnings resilience that current multiples fail to reflect. The key risk is if EPRA raises fuel prices, which would likely feed through into higher inflation and weaker economic activity. In that scenario, broader index selling could follow, placing downward pressure on market valuations and leading to meaningful multiple compression across bank stocks.

Our focus this week centres on three themes.

Progress in the Middle East conflict - Should diplomacy advance, oil could fall to $90 and equities could gain enough momentum to break above their 200-day moving average. However, should any escalation materialise, oil could go as high as $120 and the S&P 500 would test new yearly lows. The range of outcomes remains wide, and the binary nature of the situation favours caution.

March Consumer Price Index (CPI) - The March inflation reading, will be the first data point to capture war-driven energy prices. The number will influence the U.S. Federal Reserve’s path and the market’s reaction. An upward surprise would materially reduce the probability of rate cuts in the second half of 2026 and could lead to a market selloff.

Kenya’s Inflation Transmission (CPI) - The April 15 EPRA fuel price review will determine whether the energy shock will translate to inflation. The outcome also carries the implications of the CBK’s rate stance, and the equity market’s reaction.

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