Shuli Ren, Bloomberg
Global stock markets seem oddly disconnected from geopolitical reality. There’s no clear path to a peace deal between Washington and Tehran. The Strait of Hormuz remains closed, squeezing energy importers from Pakistan to Thailand. Yet nearly two months into the war, the MSCI Emerging Markets Index has recovered almost all losses since the US and Israel struck Iran in late February.
This reaction contrasts sharply with 2022, when Russia’s invasion of Ukraine sent oil prices surging and emerging markets into a tailspin. So what are investors thinking? Three explanations stand out.
First, since ChatGPT’s arrival in late 2022, emerging markets have increasingly become an AI story. Investors now recognize that a large share of the technology’s supply chain sits in north Asia. Taiwan Semiconductor Manufacturing Co., Nvidia’s key chipmaker, recently raised its 2026 outlook. High-bandwidth memory chips essential for AI systems are largely produced by South Korea’s SK Hynix and Samsung Electronics.
After strong gains in 2025, Taiwan and South Korea now make up about 40% of the MSCI Emerging Markets Index, up from 28% four years ago. China also offers its own AI narrative, serving as a hedge for investors wary of whether US Big Tech can sustain its massive spending.
In the US, chip stocks have driven the rebound, with the Philadelphia Semiconductor Index up 35% year-to-date. It’s therefore natural for investors to chase north Asia’s tech firms, supporting the swift recovery in emerging markets.
Second, China — the biggest factor — has remained resilient. First-quarter growth and industrial output topped forecasts despite the war. The conflict has arguably validated Beijing’s strategy of stockpiling key commodities.
This buildup began in late 2023. Oil stockpiling surged to over one million barrels per day in 2025, according to Gavekal Dragonomics. Reserves could cover more than two years of domestic consumption.
Oil is only part of the story. China has also stockpiled fertilizers, food, and industrial metals. As a result, its factories can keep running, producing electric vehicles and circuit boards even as Middle East turmoil disrupts upstream supply chains.
In effect, the Iran conflict is a stress test for the world’s largest factory — and Beijing has passed. That resilience has boosted investor confidence. The tech-heavy ChiNext Index has climbed to an 11-year high, led by EV battery giant Contemporary Amperex Technology Co., which reported a 49% jump in first-quarter net income and is expanding its mining of critical minerals.
Third, the so-called TACO trade remains in play. While President Donald Trump’s rhetoric may move oil markets, equities are forward-looking. If history is a guide, Washington may eventually back down, even if the path is volatile.
During Trump’s time in office, stocks often bottomed before major shocks hit the real economy. In 2020, markets recovered ahead of rising Covid cases. A similar pattern followed last year’s tariff tensions. Investors have grown accustomed to V-shaped rebounds after Trump-driven corrections.
Skeptics warn of complacency, but the ability of emerging markets to rebound alongside the S&P 500 — despite exposure to energy shocks — suggests underlying strength.
Earlier this year, I argued that emerging markets had entered a supercycle, offering opportunities for AI and commodities investors. The Iran war may have dented that view, but it hasn’t broken it. These markets, long seen as underdogs, are down — but far from out.
[Abridged]
Courtesy Bloomberg/Shuli Ren
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