Commentary
The fact that developing nations’ equities are able to rebound despite the bloc’s vulnerability to energy shocks shows there’s value in this space, says Shuli Ren for Bloomberg Opinion.
HONG KONG: Global stock markets seem disconnected from geopolitical reality.
There’s no clear path to a peace deal between Washington and Tehran. The Strait of Hormuz remains closed, pinching energy importers from Pakistan to Thailand. Yet almost two months into the war, the benchmark MSCI Emerging Markets Index has practically recovered all the losses since the US and Israel first struck Iran in late February.
This price reaction is markedly different from 2022, when Russia’s invasion of Ukraine sent oil and gas prices spiking and emerging markets into a tailspin. So what are investors thinking? I offer three explanations.
AN AI STORY
First, since the arrival of ChatGPT in late 2022, emerging markets have gradually morphed into an AI story. Global investors are realising that a big chunk of the nascent technology’s complex supply chain is located in North Asia. The main chipmaker for Nvidia, Taiwan Semiconductor Manufacturing, is headquartered in Taiwan and recently raised its sales outlook for 2026.
Meanwhile, most high-bandwidth memory chips, or HBM, essential to support AI systems, are produced by South Korean tech giants SK Hynix and Samsung Electronics.
After blistering runs in 2025, Taiwan and South Korea now account for roughly 40 per cent of the MSCI Emerging Markets Index, versus 28 per cent four years ago. China has its own AI narrative, too, and serves as a healthy hedge for those worried that US big tech might fall short of its massive capital spending plans.
In the US, the market rebound has been primarily driven by chip stocks, with the Philadelphia Semiconductor Index up 35 per cent year-to-date. It’s therefore only natural for global investors to chase north Asia’s hard tech firms as well, underpinning the speedy recovery in emerging markets.
A RESILIENT CHINA
Second, China, the biggest elephant in the room, has remained resilient, with first-quarter growth and industrial production topping forecasts despite the war. In fact, one might argue that the military conflict in Iran has vindicated Beijing’s top-down strategy of hoarding key commodities.
Beijing’s frenzied build-up of reserves began in late 2023. Stockpiling of oil surged from near zero between 2021 and 2023 to an average of more than one million barrels per day in 2025, according to Gavekal Dragonomics’ Christopher Beddor. Total oil reserves could, in theory, cover more than two years of domestic consumption.
Oil is only one of the high-profile commodities the country stockpiles. The list also includes fertilisers, foodstuffs and industrial metals. As a result, Chinese factories can still keep the lights on, churning out electric vehicles and circuit boards while turmoil in the Middle East damages upstream production of key raw materials such as aluminium.
In other words, the Iran conflict is a real-world stress test on the world’s largest factory, and Beijing has passed. This in turn boosts investor confidence and asset prices. The tech-heavy ChiNext Index, led by electric vehicle battery giant Contemporary Amperex Technology (CATL), has powered to an 11-year high, buoyed by strong earnings. CATL posted a 49 per cent jump in net income in the first quarter and is doubling down on the mining of critical minerals.
TACO TRADE STILL ON
Third, the TACO trade is still on.
While President Donald Trump’s social media posts may have transformed how oil markets behave, equity markets are more forward-looking. If history is any guide, Washington will blink again and a resolution to the Iran conflict will come, although probably with many dramatic twists and turns along the way.
Indeed, during both of Trump’s terms in the White House, stocks have tended to bottom well before seismic events hit main street. During the 2020 pandemic, equities had recovered ahead of massive increases in confirmed COVID-19 cases.
Last year, the same phenomenon occurred with the Liberation Day tariffs. Investors have become conditioned to believe that Trump-induced corrections are V-shaped.
To be sure, there are plenty of sceptics arguing against what they see as complacency in asset prices. But the fact that developing nations’ equities are able to rebound alongside the S&P 500 despite the bloc’s vulnerability to energy shocks shows that there’s value in this space.
In January, I argued that emerging markets have entered a supercycle and now offer opportunities for AI enthusiasts and metals bulls alike. The Iran war may have dented the thesis, but not destroyed it.
Developing economies’ assets, considered an underdog for more than a decade, are down but not out.