Despite a series of geopolitical flashpoints and mounting global uncertainties, equity markets around the world — including the Philippine Stock Exchange index (PSEi) — continue to defy expectations by holding firm, if not rallying. As war tensions ease in the Middle East and global investors price in interest rate cuts by central banks, a surprising calm has settled over trading floors.

The PSEi posted consecutive gains last week. The uptrend comes even as fears remain elevated over renewed trade friction between the United States and China, as well as the fragile ceasefire between Iran and Israel.

Several analysts note that markets are navigating these tensions with guarded optimism. Rather than fleeing to safe-haven assets, many investors are shifting capital toward undervalued equities, particularly in emerging markets like the Philippines.

According to BPI Securities, the rally in Manila has been partly driven by bargain-hunting and expectations that the Bangko Sentral ng Pilipinas (BSP) will begin cutting rates later this year. The BSP has maintained its key policy rate at 6.5 percent but signaled in its latest monetary policy meeting that easing could begin by the fourth quarter should inflation continue to moderate.

Globally, sentiment has been boosted by the belief that the US Federal Reserve is nearing the end of its tightening cycle. With inflation softening and economic data showing signs of cooling, financial markets are increasingly pricing in the possibility of at least one interest rate cut by the Fed before the end of the year. This has revived investor appetite for risk assets, leading to fresh inflows into equities across Asia, Europe and North America.

Corporate earnings have also played a key role in stabilizing market sentiment. In the United States, S&P 500 companies have largely posted stronger-than-expected results in the first half of 2025. This performance has been bolstered by aggressive share buybacks and tighter cost controls, helping to maintain margins even amid slowing revenue growth.

Similar trends are emerging in Southeast Asia, where large-cap firms in the banking, utilities, and consumer sectors have reported resilient earnings.

Even in Israel, where markets were rocked earlier this year by the escalation of hostilities with Iran, the Tel Aviv Stock Exchange has recovered to post gains — underscoring how quickly investors are discounting the worst-case scenarios.

Historical data supports this trend. A study by J.P. Morgan showed that following major geopolitical shocks, equity markets typically recover within six to twelve months, provided oil prices remain contained and credit conditions do not tighten significantly.

Calm seen to last

However, not all experts are convinced that the current calm will last. Morgan Stanley recently warned that a sustained spike in oil prices, particularly if Brent crude breaches the $120 per barrel mark, could reignite inflationary pressures and force central banks to reverse their dovish stance.

So far, Brent has remained below $90, allowing markets to overlook the threat. But that could change quickly if tensions near the Strait of Hormuz escalate once again.