At first sight we see only erratic markets. Looking more in depth, however, we watch another and in our view more interesting phenomenon. Next to behaving more erratic, markets have shown increased divergence recently. On the basis of our observations, positive fundamental views on the global economy and market technicals it does indeed seem fair to look for opportunity next to close monitoring of the lingering geopolitical tensions. Both commodity and real estate exposure stand out in this respect. 

## Divergence between asset class has increased 


## In spite of geopolitical tensions, the oil price has dropped 

The geopolitical situation is the most prominent risk factor currently. Shifts in risk perception, although often based on an incomplete, coloured news flow have a big impact on investor sentiment and short-term market movements. Last week’s drop in the ZEW index and the market gyrations over the past weeks are good examples. But no matter how terrible the humanitarian dramas playing out in the Middle East and Ukraine, markets behave differently. 

History shows that these events have only a lasting impact on financial markets if commodity prices, especially oil prices, start rising. This factor is clearly lagging today, despite widespread unrest in the Middle East and (worst case) potential cuts in energy supply from Russia. Since mid-June the Brent oil price dropped by more than 10% to the lowest levels of the year.

## Lower oil price is example of increased market divergence 

Until July, global asset classes moved closely together in terms of their total returns. The return gap between government bonds, equities, real estate and commodities was hardly ever more than 5% (see graph). Leadership between asset class returns changed between real estate, bonds and commodities, while  equities generally lagged a bit. However, all asset classes gradually grinded higher over the first half of the year. 

This environment clearly changed in recent weeks as equities and oil and other commodities corrected downward significantly, while government bonds (particularly German Bunds) and real estate proved to be much more robust during the correction. As a result, the return gap between the star performer (real estate) and the weakest link (commodities) has jumped to around 15% year to date.