Global markets experienced elevated volatility this week following the escalation of geopolitical tensions in the Middle East. The initial reaction was characterised by a rapid reduction in risk across global portfolios, particularly in emerging markets and energy importing economies.
However, sentiment has stabilised somewhat over the past sessions as investors reassess the broader macroeconomic environment. While geopolitical risks remain elevated, the underlying global economic backdrop continues to show resilience, with growth in many emerging markets remaining solid and corporate fundamentals largely unchanged.
Energy markets remain a key channel through which geopolitical developments influence investor sentiment. Although oil price volatility has increased, markets have so far remained relatively orderly and supply disruptions appear limited. As a result, investors are increasingly distinguishing between short-term geopolitical shocks and longer-term economic fundamentals.
In this environment, market volatility is often driven more by positioning and liquidity dynamics than by changes in the outlook for corporate earnings. As investors gradually reposition, some of the sharpest market moves earlier in the week have already begun to reverse.
From a longer-term perspective, structural drivers supporting emerging and frontier markets remain intact. Strong domestic demand, improving balance sheets and relatively attractive valuations compared with developed markets continue to underpin the investment case for many companies across our investment universe.
Periods of heightened uncertainty can create temporary dislocations, but they also present opportunities for active investors to identify high-quality companies whose long-term growth prospects remain unchanged.
In the webinar, Anders Borg, East Capital Group's Senior Advisor and Jacob Grapengiesser, East Capital's CIO, discuss how this evolving situation may influence EM equity markets, earnings expectations, capital flows and country dispersion. The session is also cover positioning within East Capital portfolios and where we see opportunities arising from the recent market volatility. Moderated by Marcus Rågmark from Sales.
