Emerging-market (EM) equities have been hit hard since the Iran war began, as investors worry about fallout from the conflict. Yet, history suggests that periods of heightened market stress—when volatility is elevated and uncertainty is still being priced—have created favorable entry points for EM investors in the past.
Equity markets have traded anxiously as the US-Israeli attacks on Iran escalated into a regional war in March. Iran shut the Strait of Hormuz, through which roughly a fifth of the world’s oil is shipped, raising fears of a sustained energy shock. Concerns that higher oil prices could fuel inflation, curb growth and undermine earnings pushed global equities lower. The MSCI Emerging Markets Index fell by 11% in US-dollar terms in March after a strong run in 2025 and the first two months of 2026.
Oil Shock Roils Asian Economies
The impact has been most visible across parts of Asia. India, Thailand and the Philippines—which rely heavily on oil transported through the Strait—have taken steps to cushion the blow from higher prices. While some commodity-rich emerging countries such as Brazil may be more insulated from the oil shock, investors fear that EM companies in general look vulnerable to the effects of higher energy costs on growth and profitability.
These uncertainties also help explain the broader rise in market volatility. The VIX Index of US equity market volatility, also known as Wall Street’s fear gauge, has climbed as investors grapple with a widening range of geopolitical and macro outcomes. To understand what this historically has meant for EM investors, we examined EM equity market returns following different month-end VIX levels since 2001.
VIX and EM Equities: A Surprising Rebound Signal
Extreme volatility spikes are rare. Over the past 24 years, the VIX has exceeded 40 at month-end only nine times. Yet, those episodes have tended to coincide with unusually strong subsequent returns for EM equities. When the VIX finished a month above 40, EM stocks surged by more than 60% in the next 12 months on average, comfortably ahead of developed-market peers (Display).
