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Iran War Shakes Emerging Markets: What's Next?
9 Mar
Summary
- Emerging markets stocks and currencies face steep losses.
- Geopolitical shock causes volatility despite solid economic growth.
- Investors added $12.6 billion to emerging markets assets recently.
The ongoing conflict in Iran has significantly impacted Wall Street's favoured emerging markets, leading to substantial losses in stocks and currencies. The MSCI equity index recorded its largest weekly drop in six years, accompanied by a jump in bond yields.
Despite these market shocks, investment firms like Pacific Investment Management Co. and Barings LLC maintain a positive long-term outlook. Their conviction is based on key drivers such as diversification from US assets, attractive valuations, and robust economic growth within emerging economies.
Many investors anticipate these fundamental themes will re-emerge once geopolitical uncertainties subside. Data shows investors injected $12.6 billion into emerging-market stocks and bonds in the week ending Wednesday, indicating a belief that current price dips offer a buying opportunity.
However, risks are escalating. Brent crude oil prices have surpassed $90 a barrel, and Middle Eastern conflicts are intensifying. This surge in oil prices could negatively affect economies reliant on imports, while a strengthening US dollar may tighten financial conditions for emerging market investors.
Uncertainty has prompted institutions like JPMorgan Chase & Co. to downgrade their recommendations on emerging-market assets, shifting towards more cautious positions on various bonds and currencies.
