The MSCI Emerging Markets Index fell 13.1% over the month, marking its steepest monthly decline since March 2020 and significantly underperforming the MSCI World Index, which fell 6.4% over the month. Higher oil prices, renewed inflation concerns, and a stronger US Dollar all conspired to weigh heavily on emerging market equities.

The closure of the Strait of Hormuz, a critical chokepoint through which roughly a fifth of global oil and gas flows, delivered an unprecedented supply shock to energy markets. In response, global equity markets broadly declined, while core government bond yields and volatility indicators rose.

Markets in the emerging Asia region were among the hardest hit, given the region’s heavy reliance on Middle Eastern energy. More than 80% of the oil and gas passing through the Strait of Hormuz is destined for Asia, leaving major importers such as China, India, Japan and South Korea exposed to higher costs, potential fuel shortages, and rising freight and insurance expenses. While most Asian economies entered this period with relatively contained inflation, energy inventories are generally sufficient to cover only a few weeks.

South Korea experienced particularly acute stress, with its main equity index recording its largest single-day decline, triggering multiple circuit breakers amid panic selling. Large-cap technology stocks, including Samsung Electronics and SK Hynix, were central to the move lower. Taiwan’s market also declined, although technology companies linked to artificial intelligence infrastructure provided some support, as demand for AI-related hardware remained resilient.

Indian equities also fell as the country’s significant import dependency, with roughly 85-90% of crude oil demand met through overseas supply, left it acutely sensitive to the price shock. However, some recovery emerged towards the end of the month, led by industrial conglomerates and banks.

In China, the MSCI China Index declined 7.7%. Policymakers adopted a measured tone at the National People’s Congress, setting a 2026 GDP growth target of 4.5-5%, the most modest since the early 1990s. China’s years of investment in energy security, including reserve accumulation and supply diversification, left it relatively better positioned than regional peers. Nevertheless, the property market remains a structural headwind: residential prices have now contracted for 32 consecutive months, new home sales fell 14% in value terms in 2025, and elevated household savings continue to constrain domestic consumption.

Latin America provided relative stability amid the broader turmoil, declining by only 4.3% compared to the 13.1% fall in the broader EM index. As a net commodity exporter, the region enjoyed a degree of insulation, with investors viewing it as a relative safe haven within the EM region. Argentina and Colombia delivered positive returns, while Brazil, though experiencing a modest decline, outperformed both regional and broader EM peers. The Central Bank of Brazil initiated a cautious easing cycle, reducing its benchmark rate by 25 basis points to 14.75%, even as renewed inflation risks complicated the economic outlook. Mexico, Peru, and Chile were the main detractors, with Chile further impacted by weaker copper prices and currency depreciation.

Middle Eastern markets faced significant headwinds from the conflict on their doorstep, with disruptions to Hormuz shipping raising concerns over export volumes, fiscal revenues and economic stability. Despite these pressures, the region’s core economies demonstrated relative resilience, supported by substantial fiscal reserves and the ability to reroute exports through alternative channels, partially mitigating the impact of the conflict.