Iran Conflict Exposes Concentration Risk in Emerging Markets
The escalating conflict between the U.S. And Iran is not only driving up oil prices but also highlighting significant concentration risks within emerging market (EM) investments, particularly the heavy reliance on Asian economies. Investors, who have increasingly turned to emerging markets for growth and diversification, may be facing unforeseen vulnerabilities as geopolitical tensions rise.
Concentration in Asia
Emerging market ETFs are overwhelmingly weighted towards Asia, with approximately 80% of broad-based EM indexes tied to countries like China, Taiwan, India, and South Korea 1. This concentration means that the performance of these ETFs is heavily dependent on the economic health and stability of these specific nations.
Impact of Rising Oil Prices
The U.S.-Iran military conflict has pushed oil prices up nearly 30% this week alone, creating volatility in global and emerging market equities 1. Countries heavily reliant on energy imports, such as South Korea, are particularly vulnerable, as their tech manufacturing sectors – crucial to the AI boom – are energy-intensive.
Performance of Emerging Market ETFs
Despite the recent turmoil, the iShares MSCI Emerging Markets ETF (EEM) has shown strong performance in recent years, gaining 29% in 2025 and a small gain so far in 2026 1. However, its holdings remain heavily tilted towards the aforementioned Asian giants, with significant exposure to tech companies like Taiwan Semiconductor and Samsung.
Expert Perspective
Malcolm Dorson, senior emerging markets portfolio manager and senior v.p. Head of the active investment team at Global X, emphasized the concentration risk, stating that roughly 80% of the EM index is still comprised of Asian markets 1. The EM index has a tech sector weighting of over 30%.
South Korean Volatility
South Korean stocks have experienced significant volatility this week amid the escalating tensions 1.
Iran Stock Market Performance
As of February 24, 2026, Iran’s main stock market index, the TEDPIX, reached 3,652,000 points, a 0.94% increase from the previous session 2.
Broader Geopolitical Context
The conflict has been described as America’s largest Middle East incursion since Operation Iraqi Freedom, involving strikes against Iranian leader Ayatollah Ali Khamenei and dozens of his top lieutenants 3.
Although the impact on global stock markets has not yet been fully realized, the situation remains fluid and warrants close monitoring.