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The global supply chain shock from the Middle East conflict reinforces our view on emerging markets (EM): focus on quality and selectivity. The conflict has boosted the U.S. dollar and dented EM performance – but not evenly. EM stocks have outperformed developed markets (DM) so far this year. That’s why it’s critical to look under the hood: Different energy exposures and mega forces benefit some EMs over others. We stay selective in EM equities and like EM hard currency debt.
EM stocks and bonds started to reverse years of underperformance in 2025, with a weaker dollar and broadly stable global growth. That performance had carried over into 2026 – until the start of the Middle East conflict and dollar jump. But we are seeing greater dispersion and some EM countries still outperforming year-to-date. Some of that relative resilience is tied to the difference between EM energy importers and exporters, we think.
The Strait of Hormuz normally transports a fifth of the world’s oil and liquefied natural gas (LNG). Its de facto closure is having disparate effects across EM economies (see the chart below). Some, such as Asia and India, that rely on the strait for their energy needs are particularly exposed. By contrast, Latin American countries – many of which are net energy exporters – are far less exposed. That has helped EM stocks and bonds hold up overall.
However, the thematic distinction between energy importers and exporters does not on its own account for differences in EM performance. South Korea relies on the strait for about 65% of its oil, while a third of China LNG flows through it. Yet both local markets have still benefitted from mega forces. This is partly due to South Korea’s leadership in the memory chips needed for AI, and for China its leading role in renewable energy.
In Latin America, we see AI-fueled demand for critical minerals like copper and lithium boosting energy exporters further. We eye risks to the AI theme: constraints on energy to power data centers, competition for capital crimping AI capital spending needs and supply disruptions to commodities involved in chipmaking sourced from the Persian Gulf, like helium.
What does all this mean for EM investing?
In debt, we see improved fiscal and monetary policy driving EM resilience. This has spurred a broad array of sovereign credit rating upgrades, especially in riskier countries with high yield ratings. The conflict could pause that pattern – one reason we favor EM hard currency debt. It’s mostly denominated in U.S. dollars, shielding it from local currency volatility. Plus, the main J.P. Morgan EM hard currency debt index has also seen its duration shrink to near its lowest levels in the past two decades, making it less sensitive to interest rate swings. And the index skews toward Latin American commodity and energy exporters.
Restrictive monetary policy from countries like Mexico and Brazil have allowed them to cut interest rates since the conflict began – a modest but meaningful boost and a stark contrast to market expectations for many DM central banks. Yet if the Federal Reserve were to hike and the U.S. dollar strengthens, EM central banks might have to respond in kind.
In equities, we stay neutral overall but get selective with exposures. That’s particularly true within China: Hyper-competitive pricing in response to overproduction means its leadership in renewables doesn’t always result in strong equity performance. We also like critical mineral exporters in Chile and Peru that benefit from AI demand and the low-carbon transition.
Selectivity is key in EM as supply chain disruptions from the Mideast conflict broaden. We’re neutral EM equities, but like mega-force beneficiaries like Latin America. We favor EM hard currency debt as a defensive EM play for now.
Wei Li, Managing Director, is the Global Chief Investment Strategist at BlackRock Investment Institute at BlackRock Inc.
Ben Powell, Chief Investment Strategist for the Middle East and APAC — BlackRock Investment Institute, Axel Christensen, Chief Investment Strategist for Latin America — BlackRock Investment Institute, and Pablo Goldberg, Head of Research and Portfolio Manager — BlackRock Emerging Market Debt Team, contributed to this article.
Disclaimer
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this post is at the sole discretion of the reader.
© 2026 BlackRock Inc. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. This article first appeared April 6, 2026, on the BlackRock website. Used with permission.
Image: iStock.com/JavierHuras
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