Top of the Morning: Asia’s strategic edge - Diversification, resilience, and opportunity in a shifting world

Top of the Morning: Emerging market equities - New drivers, new risks, and what to watch next

Top of the Morning: The landscape for Emerging Market Equities

The cyclical turbulence in emerging market equities is closely related to rising geopolitical tensions in the Middle East, which poses significant risks for energy markets, especially given the strategic importance of the Strait of Hormuz. Per the full note [source], the potential for supply shocks could have cascading effects on inflation and economic stability globally, especially for major importers such as China and India. The desk outlook suggests a base case where any disruption may be short-lived, with partial reversals anticipated as conditions stabilize. This nuanced view stands in contrast to the immediate panic seen in market responses, stressing a strategic position amidst volatility and providing a roadmap for traders to maneuver through potential pitfalls.

Top of the Morning: Emerging Markets - Performance drivers and risks

The desk believes that emerging market assets are staging a significant recovery after a prolonged period of underperformance, backed by favorable economic conditions and renewed investor interest. Per the full note [source], emerging market stocks have demonstrated impressive returns in 2025, outpacing the S&P 500 by 20 percentage points, with 35% versus 15% returns respectively. This trend is driven by broader economic growth, productivity gains from AI technologies, and a shift away from concentrated performance in a few sectors. As we observe this renewed enthusiasm towards emerging markets, our internal data indicates a supportive backdrop, with firm views increasingly aligning towards these markets as viable investment options.

Top of the Morning: Resilience tested - Emerging markets navigate the energy shock

The desk underscores the resilience of emerging market bonds amid escalating geopolitical tensions and an energy crisis, diverging sharply from the vulnerabilities observed in emerging market equities. Per the full note from UBS, historical data suggests that investors who remain steadfast during geopolitical shocks often reap rewards, indicating a potential for stability in this sector despite current challenges. The desk notes that the S&P 500 has historically provided positive median returns following such shocks, highlighting a broader context of recovery opportunities. Consequently, the desk may suggest a careful reevaluation of positions within emerging markets, especially as investors navigate the risks and opportunities presented by the ongoing energy crisis and geopolitical landscapes.