March Review:

• Risk assets faced headwinds in March as tensions in the Middle East escalated sharply following US and Israeli strikes on Iranian targets. Iran retaliated through missile and drone attacks that increasingly targeted civilian areas and critical energy infrastructure, raising concerns about wider regional spillovers. Particular focus centred on the Strait of Hormuz, where disruptions to shipping and threats to transit routes heightened fears over global energy supply security. Market reaction was swift, with oil prices surging, global equities and core rates selling off as investors priced in inflation risks and increased supply uncertainty. At the same time, US messaging appeared mixed, alternating between signalling willingness to negotiate and maintaining military pressure, adding to market uncertainty. Iranian officials have projected confidence in their strategic position, viewing their ability to threaten regional infrastructure and maritime routes as providing leverage in any potential negotiations.

• Looking to EM, credit markets saw losses of -2.02% in corporates and -3.27% in sovereigns, predominantly driven by high yield assets. Spreads widened by 10bps for corporates and 30bps for sovereigns. Within corporates, the Real Estate, Transport and Metals & Mining sectors underperformed, with no contributors over the period. In sovereigns, Africa, Europe and the Middle East detracted the most. Local markets also delivered negative returns over the month, with the index returning -5.55% for the month. This was driven by weak performance in both FX and Rates, which returned -3.35% and -2.28% respectively. At the country level, South Africa, Thailand and Chile detracted from returns over the period. However, Colombia contributed positively to performance.

Looking to Emerging Market News:

• Conflict in the Middle East dominated EM sentiment in March, with disruptions around the Strait of Hormuz driving a sharp rise in oil prices and widespread market volatility. Brent crude surged above $117 per barrel during the month, triggering inflation concerns and tighter global financial conditions. Energy-importing EMs, particularly across Asia, faced pressure from higher fuel costs, while oil exporters benefited from improved fiscal outlooks. The conflict also prompted sharp equity selloffs and heightened FX volatility across several EM regions, reinforcing the central role of geopolitics as the key macro driver for EM assets during the month.

• Argentina remained in focus during March as President Javier Milei intensified efforts to rebuild investor confidence, hosting a series of meetings with global investors during “Argentina Week” in New York. Officials highlighted progress in fiscal tightening, deregulation and external rebalancing, while emphasising Argentina’s transition toward becoming a net energy exporter over the medium term. Authorities continued to stress the importance of restoring foreign reserves and improving market access following years of instability. Despite renewed reform momentum, investor appetite remained sensitive to global risk conditions and higher oil prices, underscoring Argentina’s continued reliance on sustained policy credibility to secure long-term capital inflows.

• Pakistan experienced heightened security concerns during March following renewed tensions along its western border with Afghanistan. Several cross-border incidents were reported, prompting increased military deployments and diplomatic engagement between the two governments. Authorities also stepped up counterterrorism operations in affected regions amid concerns over militant group activity. At the same time, Pakistan continued to position itself diplomatically in broader Middle East discussions linked to regional security concerns.

• Mexico remained in the regional spotlight during March as migration flows toward the US border increased, placing renewed strain on domestic infrastructure and prompting additional enforcement measures across southern states. Authorities expanded security deployments to manage migrant routes and address organised crime activity linked to trafficking networks. Separately, security concerns remained elevated following several high-profile cartelrelated incidents in northern regions, reinforcing the ongoing challenge of maintaining stability in key industrial corridors. On the political front, discussions continued around preparations for the 2026 USMCA review, with Mexican officials emphasising the importance of preserving stable trade relations with the United States amid a shifting geopolitical backdrop

Outlook

The Iran-led supply disruption shows little sign of easing and remains the primary concern for the US administration. While the immediate impact has been felt through higher oil prices, the shock is increasingly spreading to other critical commodities, particularly fertilisers and industrial inputs, which are likely to create broader inflationary pressures across global supply chains. Markets are only partially reflecting this evolving reality. Inflation expectations have begun to move higher, especially in Europe where energy sensitivity remains elevated, while US rates markets have so far appeared relatively more contained. However, this divergence may prove temporary should the disruption persist and feed more materially into global pricing dynamics.

At the same time, traditional market correlations have weakened in the near term. Rates, equities and gold have at times declined simultaneously, highlighting the tightening of financial conditions and the absence of clear defensive havens. This environment creates a more complex backdrop for investors, where volatility is likely to remain elevated and policy responses become increasingly important. The key variable for markets will be the duration of the disruption, particularly as the US administration continues to pursue a dual-track strategy of diplomatic engagement alongside a sustained military build-up. Any shift in this balance could materially alter market sentiment and risk pricing.

From an emerging markets perspective, the move in energy prices is creating clear regional winners and losers. Asia faces some of the steepest headwinds due to its structural dependence on imported energy, which raises risks to both growth and inflation dynamics. Central and Eastern Europe, despite having limited direct exposure to the Gulf, is vulnerable to stagflationary pressures given its energy linkages and proximity to existing geopolitical stresses. In contrast, parts of Latin America appear relatively better positioned, benefiting from improved commodity terms of trade and stronger external balances.anchor for returns, the uptick in volatility in certain areas serves as a reminder for investors to conduct thorough bottom-up analysis.

Overall, we continue to maintain a cautious stance towards EM assets in the near term. The full extent of the energy shock, its persistence, and the secondary effects on global growth remain uncertain. In addition, the timeline for any resolution to the conflict remains highly unpredictable, leaving markets sensitive to headline risk and sudden shifts in geopolitical developments. Until there is greater clarity on both the duration of the disruption and the resulting macroeconomic impact, we believe a measured and selective approach remains warranted.

1Source: JPMorgan EMBI Global Diversified Index, JPMorgan GBI-EM Global Diversified Index, JPMorgan CEMBI Diversified Index, ICE BofA Diversified Local EM Non-Sovereign Index JPMorgan EMBI Global Diversified Investment Grade Index, JPMorgan EMBI Global Diversified High Yield Index.

1Source: JPMorgan EMBI Global Diversified Index, JPMorgan GBI-EM Global Diversified Index, JPMorgan CEMBI Diversified Index, ICE BofA Diversified Local EM Non-Sovereign Index JPMorgan EMBI Global Diversified Investment Grade Index, JPMorgan EMBI Global Diversified High Yield Index.