by AdvisorAnalyst Editorial Staff
Equity markets keep climbing. That much is undeniable. But the National Bank Investments CIO Office — led by Chief Investment Officer Martin Lefebvre and authored by Louis Lajoie and Mikhael Deutsch-Heng — wants investors to resist the temptation of complacency. Their June 2026 Asset Allocation Strategy, titled The Uneasy Path1, is a masterclass in holding two truths simultaneously: the trend is your friend, and the risks are real.
The Strait of Hormuz: Neither Resolved Nor Catastrophic
The defining geopolitical variable of this market cycle remains the Strait of Hormuz — and the NBI CIO Office argues that what's emerging is neither resolution nor collapse. It's something more uncomfortable.
"With the passage of time, the likelihood of a worst-case scenario involving a full-scale resurgence of hostilities continues to decline. At the same time, however, the odds of an ideal outcome marked by a swift return to unrestricted navigation in the Persian Gulf are also fading. Instead, we appear to be moving toward a highly uncomfortable equilibrium, one in which the worst is avoided in the short term but whose consequences could linger over the medium and long terms."
The arithmetic behind this equilibrium is strained. China has reduced crude imports by roughly three million barrels per day. The U.S. is exporting close to two million additional barrels daily. Strategic petroleum reserves are doing the heavy lifting — but global inventories are projected to hit five-year lows by July or August if current trends persist. The pressure for gradual maritime normalization is building on both sides: Iran faces deepening international isolation while U.S. presidential approval ratings on the economy and cost of living continue to erode. This isn't a stable floor. It's a ticking clock.
Emerging Markets: The AI Trade With a Geography Problem
Perhaps the most structurally important section of the report addresses the profound transformation of Emerging Markets as an investment category. Once dominated by cyclical sectors — energy, industrials, materials — the EM universe has rotated decisively toward growth, driven by an AI-fuelled earnings explosion in Asia.
The geographic shift is striking: Asia now represents roughly 80% of the MSCI EM index, up from just 40% in 2000. Within Asia, Taiwan and South Korea have risen sharply, with their combined EM index weight now rivalling China's — powered by TSMC, Samsung, and SK Hynix, the semiconductor and memory chip manufacturers that sit at the physical infrastructure layer of the global AI buildout.
The earnings data backs the enthusiasm. MSCI Korea and MSCI Taiwan are projecting 2026 earnings growth of 265% and 56% respectively, versus 38% for the Nasdaq 100 and 21% for the broader MSCI World. Valuations are not extreme — these names trade at forward P/E multiples below many of their U.S. technology clients. The NBI team acknowledges the momentum but flags the concentration risk clearly: EM's top three holdings represent 28.4% of the index, all tied to a single investment theme.
"Concentration is not necessarily a bad thing, which is precisely why capitalization-weighted indices are so difficult to outperform." But the caveat stands: all three of EM's top positions are exposed to the same AI thesis — a single-point-of-failure risk that warrants attention even if the structural trend remains early-stage.
The team maintains its conviction: "We continue to believe that emerging-market leadership can persist, supported by stronger earnings growth and lower valuations than those of the three other major equity regions." At a forward P/E of 12.2x versus 21.3x for the S&P 500, the valuation gap is hard to ignore.
Welcome, Mr. Warsh — Into a Very Uncomfortable Room
Kevin Warsh takes the podium as Federal Reserve Chair on June 17, and the NBI team does not understate the stakes. Bond markets are already nervous. Thirty-year yields briefly hit a 20-year high last month. Ten-year yields are being pushed by a three-part driver: rising term premium, higher inflation expectations, and a significant repricing of real policy rate expectations.
Since February 2026, those three components have contributed +17bps, +22bps, and +10bps respectively to the move in 10-year yields. Markets have swung from pricing in roughly two rate cuts to pricing in almost two rate hikes over the coming year.
"The arrival of the candidate favoured by the Trump administration comes at a particularly delicate moment for bond markets."
The question the report poses — "Will Mr. Warsh dare raise policy rates?" — is not rhetorical. The CIO Office stops short of raising a yellow flag for now, noting that current yields appear somewhat stretched relative to their fair-value model and that expected rate levels would still not push monetary policy into genuinely restrictive territory. But they're watching carefully, and so should advisors.
The Bottom Line: Constructive, Not Complacent
Despite the litany of risks, the NBI CIO Office holds its overweight on equities — modestly increased for the second consecutive month in May. The bull case rests on fundamentals, not sentiment: 88% of global equity sectors are posting positive year-over-year earnings growth, and 83% are growing above their five-year averages. Most major indices are trading at lower valuations than they entered 2026 with.
"The resilience signalled by equity markets, which remain firmly anchored in an upward trend despite these obstacles, suggests that the prevailing winds remains favourable for investors."
Within equities, the team favours the U.S. and Emerging Markets over EAFE (underweight) and holds a neutral stance on Canada — adequate, but unlikely to outperform without a meaningful contribution from gold miners.
Key Takeaways for Advisors
The NBI CIO framework this month can be distilled into three advisor-ready insights. First, the Hormuz stalemate has an expiry date — inventory drawdowns will force a resolution of some kind by late summer, making energy market developments a critical watch variable for portfolios.
Second, the EM opportunity is real but concentrated — advisors adding exposure should understand that TSMC, Samsung, and SK Hynix now function as a de facto AI infrastructure bet within a supposedly diversified asset class.
Third, the Warsh era at the Fed opens with bond markets already under pressure — fixed income positioning should reflect the possibility of a policy surprise, even if the base case remains manageable.
The uneasy path is still an upward one. But it rewards the attentive traveller.
Footnote:
1 National Bank Investments CIO Office, Asset Allocation Strategy. “The Uneasy Path” June 1, 2026. Authors: Louis Lajoie and Mikhael Deutsch-Heng.
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