But it’s not all doom and gloom, and investors shouldn’t let fear get the better of them. Although no one can predict when the oil shock and war will end, we can still stick with our investing fundamentals by looking for good businesses backed by sound structural drivers.
“If you are trying to time the market, or if you view the market as ultimately a casino with one outcome or another, then I think you can’t win that because the outcome is unknowable at this stage,” says Derrick Irwin, senior portfolio manager and co-head of the Intrinsic Emerging Markets Equity team at Allspring Global Investments. Allspring was the former asset management unit of Wells Fargo until it was spun out in November 2021.
“This is [not an] appealing environment because it’s no fun for anybody, but I think there are better opportunities for long-term investors like ourselves who have done our work and have conviction in the businesses and the evaluation of these businesses than ... for someone who’s trying to catch the falling knife. My advice to them is: don’t try it.”
Emerging markets hold their ground
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In times of uncertainty, the knee-jerk reaction of most investors is to flock to safe-haven assets like gold and the US dollar. That said, a flight to safety could come at the expense of missing out on certain bright spots available in the market.
For one, investors should not write off emerging markets just because the economic environment seems uncertain. The sheer number of countries that fall under the emerging markets label means that some will remain resilient in the face of volatility.
“[For] countries that are more exposed to higher oil prices — the net importers of oil — we are certainly seeing them struggling and seeing more volatility, whereas other parts of the market — maybe the oil exporters — are performing somewhat better,” Irwin says.
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“Brazil, which normally in an environment like this would be quite volatile, has held up pretty well because it has oil. Saudi Arabia, right in the eye of the storm, has actually held up quite well for obvious reasons: its oil. So it really depends on the country.”
In fact, emerging markets have held their ground even amid greater geopolitical uncertainty. For one, asset inflows into emerging markets have been accelerating since May 2025, following President Donald Trump’s announcement of his “Liberation Day” tariffs a month earlier. Emerging markets saw a total of US$51 billion in inflows between May 2025 and December 2025.
Paradoxically, emerging markets now appear to be the relatively safer bet for investors, especially in a world where the US is breaking international norms. “When we see capricious trade policy or geopolitical defence pacts being unwound, it raises very significant questions and uncertainty in those markets, and by extension, it makes other markets look more stable and more attractive,” says Irwin.
“We have seen investors move away from [US] dollar-based assets for exactly that reason. [They have] become less predictable to invest in,” he adds, noting that some emerging market economies, such as China, appear more predictable and are thus more attractive to investors.
Irwin is not the only one who sees potential in the Chinese market. Bank of Singapore’s chief investment strategist Eli Lee says in a note on March 12 that while he has lowered the bank’s position in Asia ex-Japan global equities to neutral from overweight, he remains positive on China equities.
“Although half of China’s crude oil imports originate from the Gulf and pass through the Strait of Hormuz, China has accumulated one of the world’s largest strategic and commercial crude reserves,” Lee writes, noting that oil and gas accounts for only about 4% of China’s power mix, lower than the 40%–50% average of its Asian peers.
Besides oil and gas, China relies on coal, hydropower, solar, wind and nuclear energy. Lee says the country also enjoys a “structural hedge” against oil and gas thanks to its rapid transition toward electric vehicles and renewable energy.
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Structural drivers for emerging markets remain intact
According to Irwin, a combination of structural and cyclical factors has propelled emerging markets into the spotlight. Firstly, the simultaneous weakening and structural peaking of the US dollar has prompted investors to reconsider their exposure to the US market. “There was reason to believe that the dollar was very expensive and that the general direction of travel for the dollar going forward was weaker.”
Secondly, investors have begun to recognise the growing maturity of emerging market economies, which have undergone “incredible growth and improvement” and are now seen as a “more stable platform from a risk and long-term growth standpoint”.
Thirdly, cyclical drivers such as declining inflation and stronger currency support due to a weaker US dollar gave central banks in emerging market economies more room to cut rates. “It was a great structural tailwind for a lot of emerging markets, particularly Latin America,” Irwin says.
Emerging markets have been relatively shielded from Trump’s tariffs because they are not heavily reliant on the US for revenue. “So across the MSCI Emerging Market benchmark, which is what we are benchmarked against, something like 7.6% of revenues are to the US. Over 90% of the revenues of the MSCI Emerging Market benchmark are to non-US customers, whether it’s within emerging markets or the EU. That’s huge,” Irwin adds.
In fact, that 7.6% mainly comprises South Korean and Taiwanese chipmakers who are currently exempted from tariffs. “The real impact on emerging markets is not as high as you think. There’s a lot of headline noise around uncertainty, but the impact, from an investment standpoint, is not as much as you might think.”
While the cyclical factors are now “on pause” due to the conflict in Iran, Irwin says the structural drivers should remain intact. The road ahead, however, remains uncertain. “The concern and the big risk is that [the conflict] does stick around longer and the disruption to oil flow becomes a longer-term problem, and those cyclical things turn into structural headwinds.”
On March 11, the International Energy Agency released 400 million barrels of oil from its reserves in response to supply disruptions. So far, this has done little to bring down rising oil prices. “400 million barrels is a lot, but if you think that the Strait of Hormuz is going to be closed for a long time, it’s not,” Irwin says.
For Irwin, the bigger issue is the lack of clear messaging on how the supply disruption will be addressed. “Markets can absorb almost any information if the messaging and the rationale are clear. I don’t think I’m being controversial when I say it has not been [clear]. We have seen real ‘back and forth’ about the need for the release of strategic oil reserves and the messaging around it.”
Allspring, Irwin says, will stick to its bottom-up investing approach. “Our job as long-term emerging market investors is not necessarily to try to guess what the State Department is going to do or what the Islamic Revolutionary Guard Corps is going to do, but to think about how we can use this volatility and disruption in the market to try to increase the quality of our underlying holdings.”
Still overweight on Indonesia
2026 has been tough for the Indonesian market so far. The country has had to weather a US$80 billion global market rout after concerns were raised over its corporate governance. In January, MSCI raised concerns about Indonesia’s limited market transparency. On Feb 5, Moody’s downgraded the country’s credit rating outlook to negative from stable, citing concerns over Indonesia’s policymaking and governance.
Irwin says that the downgrades, while concerning, have not altered Allspring’s overweight position on Indonesia. “MSCI was not wrong. Some companies in the MSCI benchmark are very illiquid and that’s always subject to manipulation. We focus on the higher-quality companies within them.”
Indonesia does appear to be in a bit of a conundrum, says Irwin. On the one hand, Indonesia’s economy is growing, but on the other, the country is saddled with an undervalued currency and stock market. “There’s a big disconnect between what should be a supportive environment for these companies and what the stock market is doing. In our view, that’s an opportunity.”
One thing that caught Irwin’s attention was how coordinated the MSCI announcement and the Indonesian regulators’ follow-up response were. Shortly after MSCI’s report, Indonesian regulators said they were pursuing market reforms such as doubling the free-float rate to 15%. “It was pretty clear that it was not a surprise announcement to anybody. The kind of aggressiveness with which the regulator moved to address it was encouraging.”
In terms of next steps, Irwin expects MSCI to remove some companies from the benchmark when it returns with a follow-up review in a few months’ time. “Maybe Indonesia becomes a little bit smaller, but the companies we own continue to do very well. It may well be that three years down the line, we find Indonesia, because of these reforms, in a much better place from a governance standpoint.”
