Iran war and stocks: Why Global X says 'it might be time to double down' on emerging markets

• Global X expects increased U.S. war spending to weaken the dollar after its recent jump, creating favorable conditions for emerging markets
• The iShares MSCI Emerging Markets ETF has underperformed recently, presenting what the firm views as a buying opportunity
• Energy is identified as a critical area to watch, with European markets highly dependent on Middle East oil; the U.S. Oil Fund ETF is up 12% this week and 32% year-to-date

Summary

Key Investment Thesis:

Global X ETFs' senior portfolio manager Malcolm Dorson recommends doubling down on emerging markets despite heightened geopolitical risks from the Iran war. The strategy hinges on expectations that increased U.S. war spending will weaken the dollar, creating favorable conditions for emerging market investments.

Market Performance:

As of Wednesday's close, emerging markets had already declined, presenting what Dorson characterizes as a buying opportunity. While acknowledging near-term dollar strength, he doesn't believe it will persist long-term.

Expert Perspectives:

• Malcolm Dorson (Global X ETFs): Believes current dollar weakness trends and domestic U.S. uncertainty support emerging markets exposure. Suggests investors "buy the dip" despite uncertainty about conflict duration.
• Cinthia Murphy (VettaFi): Notes international markets have been "the flavor of the year" and highlights that investors have become accustomed to geopolitical volatility.

Sector Focus:

Energy emerges as the critical sector to monitor if the Iran conflict extends. Murphy warns that European markets face particular vulnerability due to heavy dependence on Middle Eastern energy supplies, potentially causing significant market disruption.

Investment Vehicle:

The United States Oil Fund (USO) is mentioned as a potential energy play, showing strong performance with 12% gains for the week and 32% year-to-date returns as of Wednesday.

Key Tickers:

• EEM (iShares MSCI Emerging Markets ETF)
• USO (United States Oil Fund)

The analysis suggests geopolitical turbulence may create strategic entry points for emerging market exposure despite short-term volatility.