Top of the Morning: The landscape for Emerging Market Equities
At a Glance
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.
Key Takeaways
- 01Geopolitical unrest, especially in the Middle East, may lead to short-term volatility in emerging market equities.
- 02Rapid shifts in energy supply chains could impact inflation globally, particularly for import-dependent economies.
- 03The base case remains focused on a brief disruption in oil supplies, anticipating eventual stabilization.
- 04Investors should watch for developments in the Strait of Hormuz affecting market dynamics.
Full Analysis
What the desk is arguing
The desk argues that positioning in emerging market equities needs to take into account the volatile geopolitical landscape, particularly owing to ongoing conflicts in the Middle East. Increased risks to energy supply chains are expected to affect import-dependent countries adversely, while exporters might see marginal benefits. Per the full note source, the volatility spikes observed are symptomatic of broader reactions to geopolitical instability rather than a long-term trend.
The current view is supported by the anticipation that if the oil supply disruptions remain brief, market conditions may normalize, alleviating some inflationary pressures. Such dynamics could impact not only emerging markets but also developed economies, particularly those heavily reliant on stable oil prices.
Where it sits in our coverage
Currently, our consensus target is 1.075 for the EUR/USD, with a range from a low of 1.04 to a high of 1.12. Specific firms projecting this include:
This view aligns closely with jpmorgan, which is slightly above our consensus target, while bofa stands at the lower end, creating a narrow spectrum of expectations across the board.
How other firms see it
Several firms are aligned with the view that emerging market equities will see short-term pressures but remain resilient long-term, including jpmorgan and goldman. In contrast, firms like bofa and citi express caution, arguing for a prolonged period of volatility based on persistent energy market disruptions.
Currency pairs such as USD/BRL and USD/INR could serve as indicators of broader emerging market responses to these geopolitical events, as shifts in these currencies will likely mirror changes in sentiment towards equity markets in those regions.
Market Implications
Traders should monitor levels around 1.075 for EUR/USD closely, alongside volatility indicators, to gauge the market's response to any escalations in the geopolitical arena. Additionally, hedging strategies against potential energy price shocks may become increasingly relevant.
From the original
Against a backdrop of geopolitical uncertainty and fluidity, we discuss how investors should position, along with a review of key catalysts and risks. Plus, key takeaways from the ongoing China Two Sessions. Featured are Xingchen Yu, Emerging Markets Strategist Americas, and Laur
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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.