The View Beyond: The continued resilience of emerging market equities

Summary

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Podcast Summary: Moving Markets – The View Beyond

Episode: The Continued Resilience of Emerging Market Equities
Host: Ayako Leman
Guest: Nenat Dinnich, Emerging Market Strategist at Julius Baer
Date: April 4, 2026

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Episode Overview

This episode explores the recent performance and resilience of global emerging market equities amidst heightened geopolitical risks, particularly following the onset of war in Iran. Host Ayako Leman and guest Nenat Dinnich analyze why the drawdown in emerging market equities has been less severe than anticipated, the main risk transmission channels, and the strategic factors supporting continued optimism for the asset class. The discussion provides differentiated insights across regions and highlights structural themes such as the AI-driven capital expenditure cycle.

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Key Discussion Points & Insights

1. Initial Market Reaction & Resilience

• Context: Since the outbreak of the Iran conflict, emerging markets faced significant volatility, experiencing major sell-offs.
• Market Dynamics: Despite cumulative foreign outflows nearing US$70 billion, the actual equity performance was more resilient than many predicted (01:11–03:18).
  • “The MSCI Emerging Markets Index has only underperformed the MSCI World by around 250 basis points in the first four weeks of the conflict… It also outperformed both the Swiss Market Index and the Europe Stoxx 600.” – Nenat Dinnich (02:35)
• Sentiment vs. Fundamentals: The contained equity drawdown is attributed more to market sentiment than to any dramatic deterioration in corporate earnings or fundamentals.

2. Fundamental Drivers Behind Resilience

• Stable Corporate Fundamentals:
  • Earnings revisions for emerging market companies have remained largely stable, suggesting limited corporate impact from the conflict so far (02:08–04:23).
    • “Earnings revisions have remained relatively stable, even slightly positive, since the beginning of the war. This indicates that the direct impact on corporate earnings or margin isn’t yet visible.” – Nenat Dinnich (03:58)
• Market Sensitivity:
  • The observed beta (~1.2) is in line with historical ranges, suggesting no crisis-level escalation for the asset class (03:24–04:23).

3. Transmission Channels of Geopolitical Risk

• Nenat identifies two primary risk channels: higher energy costs and tighter financial conditions (04:23–05:29).
  • Energy Impact:
    • Net energy importers (e.g., India, select Asian economies) face pressure, whereas exporters in the Gulf and Latin America are better positioned.
  • Financial Conditions:
    • An early bout of dollar strength has eased, and there is a broad expectation of a weaker USD ahead, which would benefit EM equities.
    • “This is not a uniform shock across the asset class… regional dispersion is an important nuance for active investors.” (05:00)

4. Outlook: Why Julius Baer Remains Confident

• Earnings Growth Prospects:
  • Continued earnings growth is expected across EM regions into 2026, with no signs of widespread negative revisions (05:36–06:16).
• Supportive Currency and Monetary Conditions:
  • Julius Baer’s economists forecast an ~8% USD depreciation and two Fed rate cuts (2 x 25bps) in 2026, creating a favorable backdrop (05:36–06:16).
  • “A weaker US dollar, an easing monetary policy—that certainly sounds quite supportive.” – Ayako Leman (06:16)
• AI-Driven Capex Cycle:
  • Asian markets, highly integrated into the global AI supply chain (semiconductors, advanced packaging), are poised to benefit from ongoing capex related to AI infrastructure (06:28–07:11).
    • “The AI Capex cycle was actually key to our original upgrade thesis on emerging markets in 2025, and that structural argument remains fully intact.” – Nenat Dinnich (07:16)

5. Risks, Opportunities & The Medium-Term Case

• Geopolitical Assumptions:
  • Base case assumes oil prices peak around $110/barrel as Iran signals openness to ending the conflict; potential for short-lived escalation followed by de-escalation (07:44–09:13).
  • “We believe this combination of a contained escalation scenario, resilient earnings fundamentals, a softer dollar outlook and the AI structural tailwind together make a very compelling case to maintain or even add some emerging market allocations.” – Nenat Dinnich (08:28)
• Risk-Reward:
  • The current environment is more about sentiment than structural change, favoring patient, medium-term investors willing to weather volatility.
    • “The March selloff was painful, yes, but it appears to be more about sentiment rather than fundamentals changing materially and that’s typically where the best opportunities emerge.” – Nenat Dinnich (08:54)

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Notable Quotes & Memorable Moments

• On stability despite outflows:
  “What’s encouraging is that the earnings revision picture has remained relatively stable over the month, which suggests the direct hit to corporate fundamentals has been limited so far.” – Nenat Dinnich (02:16)

• On the differentiated impact across regions:
  "This is not a uniform shock across the asset class and that regional dispersion is an important nuance for active investors." – Nenat Dinnich (05:15)

• On the AI cycle as a structural advantage:
  “Asian markets in particular are deeply integrated into the AI supply chain... This structural positioning should allow them to benefit significantly from continued AI infrastructure buildout, regardless of near term geopolitical volatility.” – Nenat Dinnich (06:34)

• Core message for investors:
  “We believe the risk/reward asymmetry favors patient investors with a medium term horizon.” – Nenat Dinnich (08:47)

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Important Timestamps

• [01:11] — Nenat Dinnich joins & begins market assessment
• [02:16] — Stability of corporate fundamentals despite outflows
• [03:24] — Market sensitivity: beta and performance relative to crises
• [04:33] — Main transmission channels: energy and financial conditions
• [05:36] — Julius Baer’s positive outlook and supporting factors
• [06:28] — AI cycle’s impact on EM equities
• [07:44] — Contained escalation as the base case scenario
• [08:28] — Rationale for maintaining/increasing allocations to EM equities

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Summary Table

| Segment | Highlight | Timestamp | |---------|-----------|-----------| | EM Selloff & Resilience | EM equities outperformed expectations after Iran war | 01:11–03:18 | | Transmission Channels | Energy/FX impact differs by country | 04:23–05:29 | | AI as Tailwind | Integration in AI supply chain boosts Asia | 06:28–07:11 | | Risk Outlook | Case for medium-term optimism and composure | 07:44–09:13 |

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Conclusion

Despite geopolitical headwinds, Julius Baer argues the structural case for emerging market equities remains strong, driven by resilient fundamentals, a favorable currency/monetary backdrop, and powerful thematic tailwinds like the AI capex cycle. Emerging market investors should stay alert to regional differences and focus on medium-term opportunities, even as near-term volatility may persist.

End of summary.

Transcript

[A]

Hello everyone. Welcome to our latest episode of Julius Baer's Moving Markets the View Beyond, a series of podcasts in which we delve a little deeper into the topics on investors minds. My name is Ayako Leman and I am your host for this episode. We're recording this on Thursday, 2nd of April. For this episode we'll be having a closer look at global emerging market equities. Yes, a class has experienced a significant sell off since the war in Iran started five weeks ago, but to the surprise of many, the drawdown was more contained than in past crises. In this episode we'll discuss why that's the case and where we have to differentiate between various emerging market countries as the asset class covers a vast range from Latin America all the way to Southeast Asia. But before we get started, a gentle reminder for the audience to listen to this podcast to the very end to get the important legal information. And now I'm very pleased to welcome Nenat Dinnich, Emerging market strategist at Julius Bear. Welcome Nenat.

[B]

Hello Ayakou.

[A]

As mentioned in the introduction, global emerging markets experienced a significant sell off in the first four weeks following the Iran conflict that began at the end of February. But the drawdown was more contained than many feared. Did the relative resilience actually surprise you too?

[B]

Well, I wouldn't say it came as a complete surprise, as we already observed last year, that the backdrop on both the macro and corporate level across emerging economies was quite solid. Despite the increased risks stemming from higher energy prices and tightening financial conditions, the fundamental story behind emerging markets remains remarkably robust. So we continue to advocate an overweight position on the emerging market equity asset class.

[A]

Okay, that's interesting. Could you maybe elaborate on why the fundamentals haven't deteriorated despite the ongoing war in Iran, with more and more conflicting signals coming from the political side?

[B]

Certainly since the outbreak of the conflict, the asset class has seen massive outflows from foreign investors. The cumulative outflows are close to US$70 billion. Nevertheless, what's encouraging is that the earnings revision picture has remained relatively stable over the month, which suggests that the direct hit to corporate fundamentals has been limited so far. The performance is also reflecting this trend. The MSCI Emerging Markets Index has only underperformed the MSCI world by around 250 basis points in the first 44 weeks of the conflict, a negative 10.6% versus A minus 8.1% in US dollar terms. And what's also quite striking, emerging market equities outperformed both the Swiss Market Index and the Europe Stoxx 600. So in our view, the fact that it outperformed European markets and underperformed global equities by only a modest margin suggests that the fundamental story is still valid.

[A]

Okay, so you're basically saying the impact hasn't been as severe as one might have expected then?

[B]

Precisely. The market sensitivity, or beta as we call it, suggests that there's a less dramatic downside than the overall risk off environment usually would imply. The 250 basis point underperformance we have seen in the first four weeks translates to an implied beta of roughly 1.2, which is in line with the historical range. But it didn't reach the levels of 1.5 or even more, which we usually see in a crisis regime. Much of the recent adjustment appears driven by broader risk sentiment rather than actual deterioration in underlying corporate performance. And as I mentioned, earnings revisions have remained relatively stable, even slightly positive, since the beginning of the war. This indicates that the direct impact on corporate earnings or margin isn't yet visible.

[A]

Okay, I guess that's a critical observation. So does that mean that the transmission channels are primarily then indirect through higher energy costs and tighter financing, do you think?

[B]

Exactly. The two main channels are energy costs and financial conditions on energy. The pass through varies significantly across the emerging market universe. So net energy importers like India and several Asian economies face margin pressure, whereas Gulf linked markets and parts of Latin America are actually beneficiaries. On the financial conditions side, we saw some initial dollar strength as a headwind in early March, but but that has moderated so our economists expect further dollar weakness ahead and the picture is highly differentiated. I would also highlight this is not a uniform shock across the asset class and that regional dispersion is an important nuance for active investors

[A]

looking ahead. What do you think is underpinning Julius Bear's continued confidence in emerging markets?

[B]

We have several factors. First, we anticipate continued earnings growth across all emerging market regions in 2026 and we are not seeing any indications of downward revisions in key markets. Secondly, our economists continue to expect a weakening US dollar forecasting an approximate 8% depreciation from current levels, coupled with expectations of two 25 basis point rate cuts from the Fed this year actually creates a more favorable environment for emerging markets despite the current geopolitical turmoil.

[A]

Okay, so a weaker US dollar, an easing monetary policy, that certainly sounds quite supportive. So are there any additional factors that support your optimistic view on emerging markets at this stage?

[B]

Absolutely. We believe there's further upside potential linked to the ongoing AI driven capex cycle. Asian markets in particular are deeply integrated into the AI supply chain, from semiconductor manufacturing in Taiwan and South Korea to advanced packaging and assembly across Southeast Asia. This structural positioning should allow them to benefit significantly from continued AI infrastructure buildout, regardless of near term geopolitical volatility.

[A]

Okay, so AI is obviously also a very important topic emerging markets, not just in developed markets. Does that mean that the AI boom is acting as a tailwind in emerging markets?

[B]

I've got no doubt about that. The AI Capex cycle was actually key to our original upgrade thesis on emerging markets in 2025, and that structural argument remains fully intact, and that positioning has not changed because of recent events in the Middle East.

[A]

Okay, well then to conclude, would you agree that a contained escalation in the Middle east would allow for continued growth in emerging markets and therefore the case for global emerging market equities remains actually still valid?

[B]

Yes, that's our core message. The base case of our economics team assumes brand crude oil prices will peak around $110 per barrel based on an expectation that the conflict intensity moderates from the initial shock. This week we also have seen more evidence that Iran is signaling a desire to end the war. So we believe the glass half full narrative continues. While Trump's national address included somewhat conflicting messages, we think what we could well see is a short lived escalation phase that paves the way for a broader de escalation. And ultimately we believe this combination of a contained escalation scenario, resilient earnings fundamentals, a softer dollar outlook and the AI structural tailwind together make a very compelling case to maintain or even add some emerging market allocations. We're certainly not dismissing the risks and near term volatility could persist, but we believe the risk reward asymmetry favors patient investors with a medium term horizon. The March selloff was painful, yes, but it appears to be more about sentiment rather than fundamentals changing materially and that's typically where the best opportunities emerge.

[A]

Okay, thank you very much Nenat for sharing your insights and obviously we all know the situation is very fluid. It's still a thick fog of war, so we might have to revise our outlook and if so, I'm sure we'll reconvene again.

[B]

Yes, fully agree with you.

[A]

Thank you Nenat.

[B]

Thank you for having me today.

[A]

And with that we've unfortunately reached the end of this podcast episode. Thank you to my guest Nanad, and thank you for listening in. We hope you enjoyed this episode and we'll be back soon with new ones. Bye for now.

[C]

The information and opinions expressed in this podcast constitute marketing material and are not the result of independent financial or investment research. Please refer to www.juliusbear.com. legal podcasts for further other important legal.