The market impact of the Iran conflict has rippled through all major asset classes, leaving little safe space for global investors. Analysis conducted by MSCI’s research team reveals how war risk is currently flowing into equity portfolios and which markets are more at risk. MSCI found that emerging markets in Asia are most vulnerable to oil supply disruptions due to the Strait. Analysts said the stock markets of China, South Korea, India and Taiwan, each of which is highly dependent on oil via Hormuz, were hit hardest among major stock exchanges by news of the de facto shutdown. Research director Abhishek Gupta writes that the heavy weighting of countries in the MSCI Emerging Markets Index (the four largest constituents) only amplifies the portfolio-level impact for investors. He added: “Emerging market companies generate three to four times more revenue exposure to GCC countries than their developed market peers, reflecting deeper trade relationships and regional ties.” The study found that companies from India, the US, Japan and Taiwan all have an economically significant physical presence in the GCC countries, categorized as 2% or above. This type of exposure does not show up in standard geographic classifications, Gupta wrote. What about the lesson? Geopolitical shocks do not affect all investors equally. “The extent of the impact will be determined by the hidden connections built into asset holdings, such as which companies generate revenue from the affected regions, where they operate their physical facilities, and how vulnerable their supply chains are to disruption,” he added.
