Weekly market commentary

The global supply chain shock from the Middle East conflict reinforces our view on emerging markets (EM): focus on quality and selectivity. The conflict has boosted the U.S. dollar and dented EM performance – but not evenly. EM stocks have outperformed developed markets (DM) so far this year. That’s why it’s critical to look under the hood: different energy exposures and mega forces benefit some EMs over others. We stay selective in EM equities and like EM hard currency debt.

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Energy dependencies
Strait of Hormuz share of energy imports and energy import dependence, 2026

EM stocks and bonds started to reverse years of underperformance in 2025, with a weaker dollar and broadly stable global growth. That performance had carried over into 2026 – until the start of the Middle East conflict and dollar jump. But we are seeing greater dispersion and some EM countries still outperforming year-to-date. Some of that relative resilience is tied to the difference between EM energy importers and exporters, we think. The Strait of Hormuz normally transports a fifth of the world’s oil and liquefied natural gas (LNG). Its de facto closure is having disparate effects across EM economies. See the chart. Some, such as Asia and India, that rely on the strait for their energy needs are particularly exposed. By contrast, Latin American countries – many of which are net energy exporters – are far less exposed. That has helped EM stocks and bonds hold up overall.

However, the thematic distinction between energy importers and exporters does not on its own account for differences in EM performance. South Korea relies on the strait for about 65% of its oil, while a third of China LNG flows through it. Yet both local markets have still benefitted from mega forces. This is partly due to South Korea’s leadership in the memory chips needed for AI, and for China its leading role in renewable energy. In Latin America, we see AI-fueled demand for critical minerals like copper and lithium boosting energy exporters further. We eye risks to the AI theme: constraints on energy to power data centers, competition for capital crimping AI capital spending needs and supply disruptions to commodities involved in chipmaking sourced from the Persian Gulf, like helium.

Opportunities in EM hard currency debt

What does all this mean for EM investing? In debt, we see improved fiscal and monetary policy driving EM resilience. This has spurred a broad array of sovereign credit rating upgrades, especially in riskier countries with high yield ratings. The conflict could pause that pattern – one reason we favor EM hard currency debt. It’s mostly denominated in U.S. dollars, shielding it from local currency volatility. Plus, the main J.P. Morgan EM hard currency debt index has also seen its duration shrink to near its lowest levels in the past two decades, making it less sensitive to interest rate swings. And the index skews toward Latin American commodity and energy exporters. Restrictive monetary policy from countries like Mexico and Brazil have allowed them to cut interest rates since the conflict began – a modest but meaningful boost and a stark contrast to market expectations for many DM central banks. Yet if the Federal Reserve were to hike and the U.S. dollar strengthens, EM central banks might have to respond in kind.

In equities, we stay neutral overall but get selective with exposures. That’s particularly true within China: hyper-competitive pricing in response to overproduction means its leadership in renewables doesn’t always result in strong equity performance. We also like critical mineral exporters in Chile and Peru that benefit from AI demand and the low-carbon transition.

Our bottom line

Selectivity is key in EM as supply chain disruptions from the Mideast conflict broaden. We’re neutral EM equities, but like mega force beneficiaries like Latin America. We favor EM hard currency debt as a defensive EM play for now.

Market backdrop

Oil prices remain the key driver as investors grapple with a broadening supply shock, as well as occasional hopes for de-escalation of the Middle East conflict and an easing of supply chain disruptions. Brent crude oil futures were up 3% this week to $108 while December futures were down 7% to $78. The S&P 500 rose more than 3% on the week while U.S. 10-year yields fell 13 basis points to 4.31%. Markets now see the Fed on hold this year after partially pricing in a rate hike last week.

We’re watching for the impact of higher energy prices in the U.S. March CPI this week and see supply chain shocks eventually pushing up broader inflation. We also watch the February PCE data – another critical input before the Fed policy meeting this month. We eye China’s CPI and PPI, with weak domestic demand still offsetting higher energy prices.

Read our past weekly market commentaries here.

Big calls

Our highest conviction views on six- to 12-month (tactical) and over five-year (strategic) horizons, April 2026

Tactical granular views

Six- to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, April 2026

We have lengthened our tactical investment horizon back to six to 12 months. The table below reflects this and, importantly, leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns – especially at a time of heightened volatility.

Euro-denominated tactical granular views

Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, April 2026

We have lengthened our tactical investment horizon back to six to 12 months. The table below reflects this and, importantly, leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns – especially at a time of heightened volatility.