UBS Says AI Investment May Buffer EM Equity Rout as Oil Tops $90
Emerging market equities have been among the worst-performing since the Middle East conflict entered week three, with returns historically tumbling when oil surpasses $90 per barrel and valuations near long-term highs. AI investment, the top EM return driver over 15 months, could cushion volatility if hyperscaler tech spending stays resilient.
1. EM Equities Hit by Energy Shock
Emerging market equities have reversed recent gains as the Middle East conflict enters its third week, pushing investors into risk-off mode while oil prices climb above $90 per barrel, a threshold that historically coincides with significant EM return declines.
2. Limited Valuation Support
Heading into the conflict, EM stocks traded at a discount to U.S. equities well below long-term averages, leaving little margin for error as geopolitical risks escalate and institutional investors unwind positions in oil-consuming markets.
3. AI Investment as Performance Driver
Over the past 15 months, Artificial Intelligence has been the single largest driver of EM returns and earnings upgrades, with sustained U.S. hyperscaler tech spending providing a potential floor despite regional instability.
4. Outlook Hinges on Energy and Tech Capex
A sustained drop in energy costs below the $90 mark and clear signs of uninterrupted global tech capex are seen as prerequisites to restoring EM momentum and preventing a long-term recalibration of growth expectations.