The war’s potential fallout dominated the IMF’s Spring meetings. A prolonged spell of high energy costs requires a rethink of relative beneficiaries and thematic exposures.
The optimism among investors we found at the IMF’s Spring meetings stood in sharp contrast to policymakers’ cautious tone in light of the ongoing energy shock1. There is no denying that high energy costs and the supply crunch represent a test for global growth and inflation, already resulting in a hawkish interest-rate repricing and measures ranging from fuel rationing to new subsidies2. Investors, however, seem willing to look past the war-linked uncertainty and dislocations, pushing global stocks to new highs and the dollar weaker.
What are emerging market investors to make of today’s complex backdrop and how should they position for it? We offer a few observations based on impressions from the IMF talks, with an emphasis on what is expected to drive markets:
Higher for longer energy prices. Pressures keep building on global growth and inflation, investors agreed: even if oil flows were fully restored today, damage has been done and further dislocations are in the pipeline. One implication is that energy balances could persist as a factor driving country-level differentiation – something that stock-market performance since the war suggests is already at play (see Figure 1). In terms of exposure, Latin America is better off, also benefiting from limited direct trade and supply-chain linkages to the Middle East. South Asia stands as more vulnerable to energy imports. Buffers and incomes also matter and, within the region, East Asian countries – Korea, China – have greater ability to pay up for scarcer supplies from the Middle East. While GCC countries should be obvious beneficiaries from high oil and gas prices, we heard concerns that the conflict could cause permanent scarring or that, at the very least, any recovery in areas like tourism and real estate will be slow.
Figure 1: Energy balances a factor contributing to relative stock performance since start of the war (energy balance & stock returns)
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Source: IMF, Morgan Stanley, MSCI. Data as of April 17, 2026*
The AI and security thematics are on track. As the debate about the eventual payout from AI-linked investment – and implications for productivity and jobs – rages on, the audience remained optimistic about the AI capex cycle. Some noted delays due to shortages of power, hardware and workers; hyperscalers’ commitment and ability to deliver on their capex plans remains firm, however, even as leverage rises. Within EM, that reinforces continuing optimism about countries in the AI supply chain like Korea and Taiwan, as well as interest in critical minerals. The war is reinforcing another thematic, namely national security. In GCC countries in particular, investment is expected to shift towards defense and infrastructure, with a focus on resilience after the conflict exposed vulnerabilities. This rethink mirrors the pandemic-era refocus towards resilience and redundancies over the prior emphasis on efficiency of industrial supply chains.
Watching growth and earnings. One notable feature of recent stock market action was the relatively contained price correction triggered by the largest oil-supply disruption in history3. Investors pointed to continuous, positive momentum in earnings expectations, including in EM, which meant the market also underwent a big multiple de-rating in March. Indeed, that de-rating meant market multiples plunged towards historical averages from prior elevated levels – suggesting that a fair bit of war-related bad news was discounted. These positive earnings prospects, which in EM are mostly in commodities and semiconductors, provide a solid baseline for the ongoing market rebound and future upside (see “Letter from New York: Transitioning to a Healthier EM Dynamic”). Accordingly, incoming earnings reports and management guidance will be an important test for investor confidence. Growth data also matters, of course, but usual lags mean that a clear picture of the energy-shock damage (or resilience) will take time to materialize.
Trend towards global diversification has legs. Other than in the first days of the conflict when markets experienced a sharp risk-off unwind, participants in the meetings highlighted the orderly market reaction since. Selling wasn’t indiscriminate like around Liberation Day, and factors like terms of trade or fiscal and monetary space to cushion the shock seemed to matter. Similar differentiation played out in the EM currency space. And while EM stocks gave back part of their early-year outperformance versus the US since the war started, EM did better than historic betas would have suggested. In our conversations, investors saw this orderly reaction and relative performance as supportive of EM’s role in the broader trend towards global diversification. Importantly, this diversification focus coincides with positive sentiment about the US, which is on the “right side” of the energy balance and the technology sector momentum.
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IMPORTANT INFORMATION – REFERENCES
1 International Monetary Fund. (2026, April 13). Global Economy in the Shadow of War.
2 Nikkei Asia. (2026, March 31). Indonesia to Ration Fuel to Mitigate Energy Crisis and Reuters. (2026, March 12). Governments globally roll out measures to blunt effect of Iran war energy shock on consumers.
3 Goldman Sachs Economic Research. (2026, March 20). Top of Mind: Iran Conflict: How Long, And How Bad?
* Performance between February 27-April 16, 2026 of MSCI country indices, Mid & Large Cap, Net Total Return, USD.
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