Q&A: Emerging market income insights in a shifting macro landscape
Applying valuation discipline and income insight in volatile emerging markets.
Duration: 5 Mins
Date: Mar 27, 2026
Geopolitical shocks, rising energy prices, and a stronger US dollar have once again put EMs under the microscope. Yet for income-focused investors, the key question is not whether volatility will persist, but how fundamentals, valuations, and policy discipline shape income outcomes beneath the surface.
This Q&A brings together timely insight from our EM equity expert Alex Smith to cut through the noise – addressing what recent macro events mean for earnings durability, carry, valuations, and portfolio positioning. With a disciplined approach at the core, the discussion highlights how income strategies can remain anchored amid uncertainty while staying alert to the opportunities volatility can create.
How has the recent US-Iran conflict and closure of the Strait of Hormuz affected EM equities?
EM equities have experienced volatility, but the fundamental drivers and long-term outlook remain well supported.
While the US strike on Iran and subsequent closure of the Strait of Hormuz have increased market volatility and investor caution, the immediate impact on EM equities has been less dramatic than headlines suggest.
For income investors, the more durable consideration is how such events influence earnings, dividends, and balance‑sheet strength over time. The S&P 500 and Nasdaq 100 have seen only modest declines, whereas EM equities fell 8.7% in March after a strong 15% rally in January and February.1 The biggest risks are indirect, as a prolonged conflict may affect global growth and financial conditions, but this would impact developed markets (DMs) as well as EM.
With risks clearly rising, how does it impact the foundations of our EM investment case?
Despite rising risks, the core drivers of our EM investment case remain robust.
Structural tailwinds, including sustained capital investment, resilient fundamentals, and attractive valuations, continue to underpin long-term growth prospects and provide insulation against heightened volatility.
In practice, we continue to view three core pillars continuing to support the case for EM equities, even as the risk backdrop has become more complex:
- Capital expenditure (CapEx): We continue to see evidence of a powerful upcycle of EM earnings per share (EPS) driven by rising capital investment in the short and long term; with consumption growth following.
- Carry: Short‑term dollar strength, but medium‑term EM fundamentals and policymaking are stronger than most DMs.
- Cheap: Valuations continue to offer compelling long‑term asymmetry.
These foundations are consistent with the framework we outlined in our November 2025 Insights article where sustained investment, supportive carry dynamics, and compelling valuations were identified as key pillars underpinning the EM investment case.
Can EM earnings growth withstand higher oil prices and geopolitical disruption?
EM earnings are largely insulated from direct oil shocks, but should highlight strict valuation discipline and the importance of monitoring momentum and sector-specific risks.
Consensus EM earnings growth expectations have risen from 18% to 31% in February. The bulk of EM EPS growth this year is driven by sectors like information technology hardware and semiconductors, which are less sensitive to oil prices and have strong pricing power.2
While some pockets (e.g., India, heavy industry, and domestic energy importers) are more vulnerable, the overall EM index is less correlated with oil prices than in the past due to a shift towards tech, services, and innovation-led sectors.
Is the dollar strength a threat to the EM carry advantage?
The carry pillar remains intact; recent dollar strength is a short-term technical move, not a regime change.
In the near term, dollar strength is a typical risk-off response to geopolitical uncertainty and elevated oil prices but is not structural in nature. Looking through the medium term, EM central banks have entered this period from a position of relative strength, with positive real rates, restrained fiscal spending, and significant foreign exchange reserves. Once risk appetite normalizes, medium-term fundamentals favor EM currencies, supported by policy credibility and healthier balance sheets.
Are EM valuations still attractive compared to developed markets?
EM equities remain compellingly valued, offering long-term asymmetry for investors.
Despite the recent rally, EM equities trade at a ˜40% discount to the S&P 500.1 Forward price-to-earnings ratios are 15x for MSCI EM vs. 21x for S&P 500. Lower valuations provide insulation against disappointment and may create opportunities for attractive long-term returns, especially when volatility creates dislocations.
We believe these valuation dynamics to not only provide downside insulation but also shape the long‑term return potential discussed below.
What are the long-term prospects for EM equities despite current macro volatility?
Structural tailwinds remain intact, supporting long-term growth and earnings durability in EM equities.
Beyond this year’s bumper earnings, we believe the potential for EM equities to deliver 12–15% EPS growth over the coming cycle, supported by a multi-year CapEx super-cycle and rising domestic consumption. The recent conflict has reinforced the incentives for resilience, reshoring, and energy security investments, which feed into EM earnings across various sectors.
Are there opportunities for investors during periods of heightened volatility?
Volatility can create investment opportunities, buying on dips has historically led to robust returns in EM equities.
Short-term volatility often creates attractive entry points for high-quality EM names. The disciplined valuation approach may suggest investors actively seek opportunities where fundamentals remain strong, but valuations have become more appealing.
Final thoughts
Periods of heightened volatility often test investor conviction, but they can also sharpen the distinction between noise and fundamentals. As this discussion highlights, EM income today rests on a more durable foundation than in past cycles – supported by disciplined valuations, improving policy credibility, and earnings drivers that are increasingly diversified. While near‑term uncertainty is unlikely to fade quickly, we believe a measured, income‑focused approach grounded in fundamentals may help investors remain anchored through market swings, while staying positioned to act when volatility creates opportunity.
Endnotes
1 Bloomberg, March 2026.
2 JPM Equity Research, February 2026.
Index glossary
The MSCI Emerging Markets Index℠ is an unmanaged index considered representative of stocks of developing countries. The index is computed using the net return, which withholds applicable taxes for non‐resident investors. The NASDAQ 100® Index includes 100 of the largest domestic and international nonfinancial securities listed on The Nasdaq Stock Market, based on market capitalization. The S&P 500® Index is an unmanaged index considered representative of the US stock market.
Important information
Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.
Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.
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