Money exits emerging market funds as Iran conflict reverberates

• Global-mandated EM funds saw $1.1 billion in outflows in the past week, reversing the prior week's $3.2 billion in inflows, according to Morgan Stanley citing EPFR data
• Barclays warns that spiking energy prices from the Middle East conflict have shifted the narrative from a 'goldilocks' environment to potential stagflation (low growth and high inflation)
• Despite recent volatility, EM debt funds have attracted a record $21 billion year-to-date, though future performance depends on the duration of energy price pressures

Summary: Emerging Market Funds Face Outflows Amid Iran Conflict

Key Developments:

Emerging market (EM) funds experienced significant disruptions in the week ending March 11, 2026, as the Iran war prompted investors to retreat from riskier assets. Bond fund inflows declined sharply while equity fund inflows flattened after five consecutive weeks of gains.

Fund Flow Data:

• Global-mandated EM funds saw outflows of $1.1 billion in the past week, reversing from $3.2 billion in inflows the previous week (Morgan Stanley/EPFR data)
• Despite recent weakness, year-to-date EM debt funds recorded a record $21 billion in inflows (Marex/EPFR)

Market Implications:

Barclays warned that the "Goldilocks" era for emerging markets is in jeopardy, with the narrative shifting from favorable conditions to potential stagflation due to spiking energy prices. The conflict threatens the Strait of Hormuz, a crucial oil passage, amplifying energy price concerns.

Analyst Views:

Andreas Kolbe (Barclays) noted EM credit had previously weathered AI-driven market volatility in February but is now vulnerable to Middle East tensions. Citi's Luis Costa maintained a cautious stance, emphasizing that outcomes depend on the duration of energy price pressures. The uncertainty has temporarily halted the recent rate-cutting trend among EM central banks.

Context:

Emerging markets had been benefiting from a weaker U.S. dollar, post-COVID reforms, and solid central bank policies before the conflict disrupted momentum. Analysts stress that strong fundamentals in many EM economies could provide resilience, though near-term volatility is expected to persist based on energy market developments.