Iran conflict reinforces Asia’s structural and corporate resilience

For investors hoping for an uneventful start to 2026, the Iran conflict serves as a stark reminder that geopolitical risks are here to stay. US military strikes on Iran have pushed up energy prices and re-ignited uncertainty around supply chains and inflation.

A familiar test

Geopolitics returns as a stress point for Asia

Asia’s economies tamed inflation last year and accordingly have loosened monetary conditions as attention turned towards boosting domestic demand. Another supply-side shock will test that stance.

However, policymakers have built credibility in dealing with the consecutive supply shocks of the pandemic, energy and food price shock, and US tariffs. As always, there are those economies better positioned for such a shock (e.g. China, India, Malaysia) and those less so (e.g. Philippines, Indonesia).

It is also a stress test for markets, one we believe is likely to widen the dispersion across Asian equity markets and separate the resilient from the rest by balance sheet strength, pricing power, and demand visibility.

Higher energy prices

How the shock is likely to flow through

Governments in Asia have done more in the past to control the passthrough effect from energy price spikes, but aside from using strategic reserves, thinking has shifted towards allowing demand to soften in response to higher prices and the terms of trade adjustment to take effect, reducing strains on balance of payments and fiscal positions.

As such, the more immediate impact would be higher energy costs. Countries that import energy will feel the squeeze through higher transport, utilities, and food prices, along with the resulting impact on discretionary spending and margins where pricing power is weak.

Companies with thin margins, high leverage, or exposure to short-cycle consumer demand would be the most vulnerable, but businesses with strong balance sheets that are able to pass through costs and protect margins would be better placed to absorb any shock.

Sector implications

Where pressures (and buffers) may emerge

Across sectors, industries that are energy intensive will face margin pressure, whereas infrastructure and utilities enjoy the buffer of long-term contracts and policy frameworks. Within technology, artificial intelligence (AI)‑linked infrastructure and semiconductor supply chains with committed capital expenditure (CapEx), higher earnings visibility and long order backlogs could prove far more resilient than consumer electronics, where demand is more elastic and inventory risk persists.

Notably, while investors may have been concerned about the shortage of raw materials in supply chains, the impact has been relatively more manageable for some companies. This could reflect lessons learnt from the supply chain shock during COVID. In some industries, like semiconductors for example, there is sufficient inventory of certain raw materials, albeit a protracted Iran conflict would run down inventory and raise the broader question of demand destruction.

What markets tend to reward during periods of stress

While heightened geopolitical uncertainty and macro stress can be uncomfortable, such periods tend to see markets increasingly reward steady cash generation, balance sheet discipline, and durable pricing power, while businesses exposed to weak demand visibility or short‑cycle pricing lose out. This is where the resilience of quality companies, backed by strong cash flows, robust balance sheets, and the ability to protect margins, helps shareholders better withstand volatility.

Security, energy, and supply chains re‑enter the spotlight

One notable shift has been a renewed emphasis on security, not just in defense but also in energy security and supply chain resilience. These themes sit squarely within the structural opportunities which investors may be targeting, particularly in areas where capital discipline and long‑term investment cycles matter.

Asia has long been seeking to reduce its vulnerability to energy price shocks, but this shock should renew focus on diversifying energy supply both via source and through regional power grid integration.

Portfolio implications

Why selectivity matters across Asian equities

Across portfolios, we believe investors continue to prioritize visibility around demand, cash flow, and balance sheet strength. Investors remain selective, leaning towards companies with structural growth drivers and away from highly leveraged or price‑taking businesses, and may intend to use this volatility to capture valuation opportunities that have emerged from market dislocations, which we believe may prove rewarding over the long term.

More broadly, Asia’s potential and opportunity lie in huge domestic markets underpinning consumption, urbanization, and industrial and infrastructure upgrading, as well as its core role in AI, innovation, and technology supply chains. Intra-regional trade is on the rise, and reliance on short-term external financing has been on the decline.

The Iran conflict is unlikely to change this structural trajectory, but it does reinforce the case for investing in Asia, with active and selective exposure across Asian equities.

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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