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Emerging market equities are now outperforming expectations for a conflict-induced downturn, with the MSCI Emerging Markets index recovering to all-time highs.
Despite initial concerns that rising energy prices and geopolitical instability in the Middle East would undermine international equities, the index has risen about 14% this year, according to a Wall Street Journal report.
The performance of the emerging market index has significantly outperformed the S&P 500's 5.6% gain over the same period.
Demand for AI protects Asian tech hubs
The main driver of growth this year has been the massive development of AI infrastructure. Key suppliers from South Korea and Taiwan have seen a sharp increase in their valuations as they provide the necessary equipment for global tech companies.
The South Korean Kospi index rose by 57% in 2026, while the Taiwanese Taiex added 34%. Industry giants such as Samsung and Taiwan Semiconductor Manufacturing Co. (TSMC) have seen double-digit growth, with Samsung alone seeing an 84% year-over-year increase.
The growth of the technology sector has helped these specific markets offset the impact of higher energy prices. This is particularly notable in countries like South Korea, which imports approximately 70% of its crude oil from the Middle East.
Analysts note that while emerging markets are often volatile, their relatively cheap stocks and growth potential continue to attract investors looking for alternatives to U.S. equities.
Brazil and Exporters Cope with Energy Shocks
Outside Asia, investors are increasingly favoring oil-exporting countries that maintain low dependence on Middle Eastern energy supplies. Brazil has emerged as a standout, with its Bovespa index up 16% this year.
After becoming a net oil exporter in 2017, Brazil is projected to reach a production capacity of 4.76 million barrels of crude oil per day by 2030, representing the fastest growth in production on the continent.
This resilience to energy shocks has allowed Brazil's materials and financial sectors to return significant funds to investors through dividends. As a result, the iShares MSCI Brazil ETF has nearly quadrupled in size over the past year, reaching approximately \$12 billion.
Even with the recent growth, emerging market stocks remain fundamentally cheaper than their U.S. counterparts; the MSCI EM ETF trades at around 18.4 times earnings, compared to 28.9 for the S&P 500.