Most emerging market stocks and currencies declined on Thursday as concerns over a potential escalation in the Iran war weighed on investor sentiment.
Rising oil prices and a hawkish stance from the US Federal Reserve added to the pressure.
Oil prices surged more than 7% amid fears of supply disruptions.
According to an Axios report US President Donald Trump is expected to receive a briefing on plans for fresh military strikes on Iran, aimed at pushing Tehran back to negotiations.
The development pushed Brent crude to a fresh four-year high.
Since the conflict began, global markets have remained volatile.
Shipping disruptions in the region have kept oil prices elevated, raising concerns about persistent inflation.
EM indexes dip despite strong monthly performance
MSCI’s indexes tracking emerging market currencies and stocks fell 0.2% and 1.2%, respectively.
Despite the daily decline, both indexes were on track for strong monthly gains.
The stocks gauge is set for its biggest monthly rise since November 2022.
This comes after improved risk appetite earlier in the month, when the US and Iran announced a temporary ceasefire.
The ceasefire was later extended, even as negotiations stalled.
“With no sign of any peace talks and fears mounting about an escalation, oil prices have continued their gains of recent days… investors are pricing in a more protracted conflict,” analysts at Deutsche Bank said, as cited in a Reuters report.
Regional markets show mixed performance
Most stock indexes traded lower on the day.
Asian markets, which had rallied on optimism around artificial intelligence, also saw declines.
However, South Korea and Taiwan recorded their best monthly performance in decades.
In Europe, Romanian stocks remained flat, while Hungarian equities rose 1%.
Polish stocks fell 0.6%, while Turkish equities gained 0.4%.
South African stocks rose 0.7%, supported by a more than 1% increase in gold prices.
Gold remains one of the country’s key exports.
Fed division adds to market uncertainty
On the policy front, the US Federal Reserve kept interest rates unchanged at Jerome Powell’s final meeting as Chair.
However, the decision revealed deep divisions within the board, marking the most dissent since 1992.
Markets scaled back expectations for rate cuts, now anticipating that rates could remain unchanged through 2026.
Currency moves and global spillover effects
Among currencies, Turkey’s lira fell 0.3%, while South Africa’s rand remained flat.
Emerging European currencies showed mixed movement against the euro, with Romania’s leu and Hungary’s forint declining 0.7% and 0.8%, respectively.
Despite the dip, the Hungarian forint is set for its strongest monthly gain since June 2012.
The rally followed a sweeping election victory by the centre-right Tisza party.
In Russia, preliminary data showed the economy contracted by 0.3% in the first quarter.
This marked its first quarterly contraction since early 2023.
Meanwhile, Sri Lankan bonds fell by more than 1 cent on the dollar.
The decline was driven by the sharp rise in oil prices, highlighting the broader impact of geopolitical tensions on emerging markets.
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