Emerging markets are proving resilient despite escalating conflict in the Middle East, with earnings growth, the tech rally and regional dispersion continuing to support equities, according to Amundi.
Amundi warned the biggest risk for emerging markets remains further disruption to the Strait of Hormuz, which could push up energy prices, reignite inflation and complicate fiscal policy for countries with limited buffers.
Still, EM equities have held firm, supported by accelerating earnings expectations and a widening gap between winners and losers across regions.
Senior EM macro strategist at the Amundi Investment Institute, Debora Delbo, said the impact of the conflict is uneven across EM economies.
“Latin America is relatively insulated given its distance from the conflict and status as a net energy exporter, while Asian energy importers are more exposed. Higher oil, gas, fertiliser and freight costs can slow disinflation, with a tougher inflation/interest-rate trade-off for importers.
“Fiscal space and the ability to implement subsidies also vary across the region. For example, the fiscal space is greater in Korea, Taiwan and China than in India, Indonesia, the Philippines and Thailand. Overall, EM resilience is confirmed also by the smaller capital outflows, contained borrowing costs and stronger policy frameworks recently highlighted by the IMF.”
Amundi said earnings expectations continue to strengthen, with MSCI EM Index EPS expectations rising to 31 per cent.
“We believe this expectation is too optimistic, albeit we expect that EPS growth will remain strong, particularly as the tech cycle remains a key support. Asian tech companies are delivering strong results, with EPS expectations having stabilised at 66 per cent (April 2026). Even so, EM equities trade at a significant valuation discount.”
The firm remains constructive on EM Asia and EMEA, with South Korea and Taiwan preferred due to their exposure to semiconductors and AI-driven demand.
“In particular, we prefer Korea and Taiwan, which benefit from the tech and semiconductor cycle as well as robust earnings momentum. Although oil sensitivity has tempered expectations in India, we remain positive on this region as the earnings cycle is healthy. Elsewhere, we are neutral on China and retain a positive view on Latin America, particularly Brazil,” Delbo said.
South Korea, in particular, is standing out on the back of strong tech exposure and fiscal strength, despite being an energy importer. The country is one of Amundi’s strongest conviction calls, with consensus 2026 EPS growth expectations sitting at 91 per cent.
“Our internal estimate is more cautious but momentum remains positive. Revisions are among the strongest in EM Asia, profitability is improving and the tech cycle remains supportive.
“This supports EM semiconductor earnings and provides AI exposure at more attractive valuations than in the US. After the initial sell-off, the market recovered quickly, and we continue to view South Korea as one of the most attractive EM equity markets,” Delbo said.
“South Korea is exposed to the conflict, through energy-intensive sectors, exporter margins and weaker global demand, but we expect overall a modest economic hit. Valuations remain reasonable, especially given earnings strength, and Korea still trades at a discount to both EM and developed markets.”
Meanwhile, ClearBridge Investments said emerging markets remain particularly attractive relative to US equities, supported by strong earnings revisions and less demanding valuations.
“We are staying disciplined, using volatility as an opportunity to deploy capital, while modestly favouring the stronger earnings revisions and more reasonable valuations available in non-U.S. equities.
“We continue to believe non-US equities present an attractive opportunity relative to domestic US stocks.
EMs look particularly compelling despite their recent strength, with robust revisions to earnings expectations powering their returns and supporting a continued constructive fundamental outlook,” head of economic and market strategy, Jeff Schulze said.
“Valuations also remain less challenging than in the US and although some EM economies are significant oil importers, the adage that the stock market is not the economy rings even more true in the case of many EM countries. Developed non-US equities should also benefit from positive earnings revisions and attractive valuations, although to a lesser degree.”
ClearBridge also warned that markets remain vulnerable to a prolonged disruption in the Strait of Hormuz.
“Given that the bulk of the April rally occurred in conjunction with the de-escalation of tensions in the Middle East, we believe the risk of a prolonged supply bottleneck is real,” Schulze said.
“We continue to believe that the economic impacts should remain manageable and not result in a meaningful economic slowdown: further pullbacks would likely represent buying opportunities, in our view. At the same time, we do not believe investors should be scared off by the markets being back at all-time highs.”
Meanwhile, ClearBridge Investments said investors should not be deterred by record highs in US equities, particularly while earnings expectations remain strong.
“Our work (counterintuitively) shows that investing at new highs has historically outperformed deploying capital when the benchmark is below peak,” Schulze said.
The firm said it is “using volatility as an opportunity to deploy capital”, while favouring stronger earnings revisions and more attractive valuations in non-US equities.
US equities have rebounded sharply from their March lows, rising 13.6 per cent, with April marking the strongest monthly gain since 2020. ClearBridge attributed ongoing optimism to its US Recession Dashboard, which has now turned fully green.
“A key reason we continue to believe US markets can climb higher is the green overall signal emanating from the ClearBridge US Recession Dashboard,” Schulze said.
The bullish view comes despite persistent macro uncertainty, including elevated inflation, expectations for rates to stay higher for longer and ongoing geopolitical tensions.
“It still does not appear that artificial intelligence (AI) is driving widespread layoffs, although there are pockets of softer hiring.”
