Emerging markets bulls maintain agency regardless of Middle East battle and oil import dangers

Oil import dependency remains the primary vulnerability for Asian emerging markets, with India the most exposed given thinner inventory buffers relative to China and Japan. The partial reopening of the Strait of Hormuz following the June 17 interim accord has offered near-term relief, but with technical talks still incomplete, supply risk has not been fully priced out. Overweight positioning in Korea and Taiwan by major allocators reflects a tech-driven conviction that sits alongside, rather than in spite of, the geopolitical overhang. Dividend-paying EM equities are attracting income-focused capital, with funds targeting that segment reporting solid returns even through the conflict period.

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Franklin Templeton and other analysts say emerging markets remain attractive despite the Middle East conflict, citing tech exposure, rising intra-EM trade, and energy stock buffers that have insulated the region from the worst of the oil shock.

Not all EM is equal though:

Summary:

• Investment managers at Edmond de Rothschild, Guinness Global Investors and Franklin Templeton maintain a constructive outlook on emerging markets despite the Middle East conflict and its impact on oil-importing Asian economies
• China sources roughly 45 percent of its oil imports from the Middle East but holds sufficient stocks to maintain supply for several months; it also dominates global solar panel production, EV manufacturing and wind power capacity
• India and Japan are both heavily exposed to Middle East oil imports; Japan holds substantial reserves while India is considered more vulnerable
• Franklin Templeton remains overweight emerging markets, with a particular focus on Korea and Taiwan driven by technology sector exposure, alongside an overweight in US equities and an underweight in Europe and the UK
• Guinness Global Investors highlights deepening intra-emerging market trade as a structural buffer against external shocks, with rising incomes and urbanisation supporting domestic consumption and attracting multinational investment
• The Guinness Emerging Markets Equity Income strategy counts TSMC, Hon Hai Precision, Elite Material, Coca-Cola Femsa and Anta Sports among its top holdings, with China, Taiwan, Brazil, India and Mexico its largest country exposures

Leading investment managers are holding their ground on emerging markets despite the disruption caused by the Middle East conflict, arguing that structural growth drivers, energy inventory buffers and deepening intra-regional trade have insulated the asset class from the worst of the oil shock.

Franklin Templeton and other analysts say the case for emerging markets, while tested by conflict-driven oil price volatility, remains intact. The June 17 interim ceasefire agreement and the subsequent partial reopening of the Strait of Hormuz have provided near-term relief for Asian economies that depend heavily on Middle Eastern crude, though analysts note that technical talks between Washington and Tehran still need to conclude before a durable settlement can be assumed.

China sources around 45 percent of its oil imports from the Middle East but holds sufficient domestic stockpiles to maintain supply for several months, providing a meaningful cushion against short-term disruption. Beyond its fossil fuel dependency, China also manufactures more than 80 percent of the world’s solar photovoltaic panels, half of global electric vehicle output and a third of wind power capacity, giving it a structural energy transition advantage. Liu also points to a stabilisation in the relationship between China and the United States as a supportive backdrop.

Japan is similarly buffered by substantial oil reserves, though India presents a more acute vulnerability given thinner inventory cover and a comparably high reliance on Middle Eastern supply.

At Franklin Templeton, the constructive view is primarily driven by technology. The firm has maintained an overweight to emerging markets throughout the conflict, with Korea and Taiwan the standout positions within multi-asset portfolios, reflecting conviction in the ongoing AI and semiconductor capital expenditure cycle. The firm is underweight Europe and the United Kingdom, and describes its overall market stance as cautiously optimistic, including on the prospects for a resolution to the Middle East dispute. One risk the firm continues to monitor is Taiwan: despite a recent easing in cross-strait tensions, the view is that Beijing has not abandoned its long-term territorial position.

A more structural approach points to the growing share of trade conducted between emerging market economies as a source of insulation from the kind of external shocks the conflict has produced. Rising incomes and rapid urbanisation across the developing world are expanding local consumer markets and attracting multinational capital, reinforcing a self-reinforcing growth dynamic that reduces dependence on developed-world demand.