Commentary: Why emerging markets are dismissing bad Iran news<\/p>\n
The fact that developing nations\u2019 equities are able to rebound\ndespite the bloc\u2019s vulnerability to energy shocks shows there\u2019s value in\nthis space, says Shuli Ren for Bloomberg Opinion.<\/p>\n
HONG KONG: Global stock markets seem disconnected from geopolitical\nreality.<\/p>\n
There\u2019s no clear path to a peace deal between Washington and Tehran.\nThe Strait of Hormuz remains closed, pinching energy importers from\nPakistan to Thailand. Yet almost two months into the war, the benchmark\nMSCI Emerging Markets Index has practically recovered all the losses\nsince the US and Israel first struck Iran in late February.<\/p>\n
This price reaction is markedly different from 2022, when Russia\u2019s\ninvasion of Ukraine sent oil and gas prices spiking and emerging markets\ninto a tailspin. So what are investors thinking? I offer three\nexplanations.<\/p>\n
AN AI STORY<\/p>\n
First, since the arrival of ChatGPT in late 2022, emerging markets\nhave gradually morphed into an AI story. Global investors are realising\nthat a big chunk of the nascent technology\u2019s complex supply chain is\nlocated in North Asia. The main chipmaker for Nvidia, Taiwan\nSemiconductor Manufacturing, is headquartered in Taiwan and recently\nraised its sales outlook for 2026.<\/p>\n
Meanwhile, most high-bandwidth memory chips, or HBM, essential to\nsupport AI systems, are produced by South Korean tech giants SK Hynix\nand Samsung Electronics.<\/p>\n
After blistering runs in 2025, Taiwan and South Korea now account for\nroughly 40 per cent of the MSCI Emerging Markets Index, versus 28 per\ncent four years ago. China has its own AI narrative, too, and serves as\na healthy hedge for those worried that US big tech might fall short of\nits massive capital spending plans.<\/p>\n
In the US, the market rebound has been primarily driven by chip\nstocks, with the Philadelphia Semiconductor Index up 35 per cent\nyear-to-date. It\u2019s therefore only natural for global investors to chase\nnorth Asia\u2019s hard tech firms as well, underpinning the speedy recovery\nin emerging markets.<\/p>\n
A RESILIENT CHINA<\/p>\n
Second, China, the biggest elephant in the room, has remained\nresilient, with first-quarter growth and industrial production topping\nforecasts despite the war. In fact, one might argue that the military\nconflict in Iran has vindicated Beijing\u2019s top-down strategy of hoarding\nkey commodities.<\/p>\n
Beijing\u2019s frenzied build-up of reserves began in late 2023.\nStockpiling of oil surged from near zero between 2021 and 2023 to an\naverage of more than one million barrels per day in 2025, according to\nGavekal Dragonomics\u2019 Christopher Beddor. Total oil reserves could, in\ntheory, cover more than two years of domestic consumption.<\/p>\n
Oil is only one of the high-profile commodities the country\nstockpiles. The list also includes fertilisers, foodstuffs and\nindustrial metals. As a result, Chinese factories can still keep the\nlights on, churning out electric vehicles and circuit boards while\nturmoil in the Middle East damages upstream production of key raw\nmaterials such as aluminium.<\/p>\n
In other words, the Iran conflict is a real-world stress test on the\nworld\u2019s largest factory, and Beijing has passed. This in turn boosts\ninvestor confidence and asset prices. The tech-heavy ChiNext Index, led\nby electric vehicle battery giant Contemporary Amperex Technology\n(CATL), has powered to an 11-year high, buoyed by strong earnings. CATL\nposted a 49 per cent jump in net income in the first quarter and is\ndoubling down on the mining of critical minerals.<\/p>\n
TACO TRADE STILL ON<\/p>\n
Third, the TACO trade is still on.<\/p>\n
While President Donald Trump\u2019s social media posts may have\ntransformed how oil markets behave, equity markets are more\nforward-looking. If history is any guide, Washington will blink again\nand a resolution to the Iran conflict will come, although probably with\nmany dramatic twists and turns along the way.<\/p>\n
Indeed, during both of Trump\u2019s terms in the White House, stocks have\ntended to bottom well before seismic events hit main street. During the\n2020 pandemic, equities had recovered ahead of massive increases in\nconfirmed COVID-19 cases.<\/p>\n
Last year, the same phenomenon occurred with the Liberation Day\ntariffs. Investors have become conditioned to believe that Trump-induced\ncorrections are V-shaped.<\/p>\n
To be sure, there are plenty of sceptics arguing against what they\nsee as complacency in asset prices. But the fact that developing\nnations\u2019 equities are able to rebound alongside the S&P 500 despite\nthe bloc\u2019s vulnerability to energy shocks shows that there\u2019s value in\nthis space.<\/p>\n
In January, I argued that emerging markets have entered a supercycle\nand now offer opportunities for AI enthusiasts and metals bulls alike.\nThe Iran war may have dented the thesis, but not destroyed it.<\/p>\n
Developing economies\u2019 assets, considered an underdog for more than a\ndecade, are down but not out.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/commentary-why-emerging-markets-are-dismissing-bad-iran-news-1776901848", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }