Emerging Markets Insights: War in Iran and falling tariffs

Emerging markets are navigating a complex mix of geopolitical risk, policy shifts, and cyclical tailwinds that together shape a cautious but constructive outlook. The escalation of conflict in Iran and the risk of disruption in the Strait of Hormuz have pushed up the equity risk premium and raised inflation concerns, leaving richly valued EMs vulnerable to pullbacks if tensions worsen. At the same time, US tariff relief following the Supreme Court ruling has eased pressure on China and global trade, while investors look to China’s upcoming National People’s Congress for signals on growth targets and policy priorities.

Against this backdrop, EM equities have attracted renewed interest year-to-date as easier global financial conditions, prospects for lower US rates, and a softer dollar support flows into higher-growth markets. Structural drivers such as AI- and semiconductor-led demand in Asia and resilient Chinese exports outside the US are reinforcing earnings momentum even as domestic challenges persist.