Emerging Market Selloff Shows Flashes of 2008 Financial Crisis

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Asian markets are higher on Tuesday, after U.S. President Donald Trump backed off his threat to bomb Iran to “hit and obliterate” its power plants.

There is little support for emerging markets in particular, though, so we can expect heavy selling again if the Middle East conflict escalates.

Worst EM Selling Since GFC

Foreign investors have sold $50.45 billion in Asian equities so far this month. If that pace sustains for this month, it would mark the largest monthly outflows since 2008 and the onset of the Global Financial Crisis, Reuters reported. The outflows figure stems from LSEG data for the markets in South Korea, Taiwan, Thailand, India, Indonesia, Vietnam and the Philippines.

Investors are on track to sell off more emerging-market risk this month than in any month since the GFC.

Global investors have sold off what they see as riskier emerging-market equity and currency assets, to take money back into safer U.S. dollar holdings and developed markets.

High oil prices also suggest that central banks are likely to keep interest rates in developed markets where they are, or even raise them, should inflationary pressures appear. Traders are already repricing a declining likelihood of any rate cut from the U.S. Federal Reserve.

Oil Remains North of $100

Brent crude oil prices remain just north of $100 as I write. That’s down from a peak of $112, but still means oil prices have almost doubled in 2026, up from $58 at the start of the year.

Asia’s oil-importing nations also suffer as crude prices escalate. Japan, the Philippines, Singapore, South Korea and Taiwan import essentially 100% of their oil, as I noted in a recent column looking at Asia’s oil exposure, while that figure is north of 90% for India and Thailand, too. Prolonged energy disruption could have an “asymmetric impact” hurting emerging Asian economies in particular, Nomura noted in a recent report.

Yet this could mark an opportune time to enter positions in Asia’s top performers.

A 15% Correction in Hynix

Nomura, in setting a new 12-month target price of 1,930,000 won for the chipmaker SK Hynix HXSCL KR:000660), noted that Hynix shares have corrected 15% from their peak since the Iran war began. That’s similar to the 14.3% correction for the Korean benchmark Kospi — which is Asia’s top performer this year and last, still up 28.9% year to date. Hynix shares shot up 5.7% on Tuesday to close at 986,000 won, suggesting an almost 100% upside if the shares do hit that target price.

Samsung Electronics (KR:005930) has also corrected around 15% from its February all-time high. “We think weak share prices due to geopolitical reasons should serve as a good opportunity to accumulate the stock,” Nomura wrote in a note to clients.

Likewise, Taiwan Semiconductor Manufacturing Co. (TSM) (TW:2330) has corrected 10.2% since its all-time high on February 25, one trading day before the Middle East conflict began. This is also likely a solid entry point for a stock that, despite the Iran-linked correction, is still up 86.2% over the course of the last 12 months.

Talks About Talks

As I noted last week, volatility has eased off as investors price in the effects of the war. Geopolitical turmoil still largely governs day-to-day price movements in Asia, but investors have been cautious about buying on dips and betting that the war will reach a quick resolution.

Trump has given himself time after postponing his threat for five days, claiming that “very good” negotiations have occurred and stating that Iran has “one more chance” to strike some form of peace deal.

But Iran says claims of peace talks are “fake news.” The speaker of Iran’s parliament took to X to say “no negotiations have been held with the U.S.,” claiming Trump is manipulating financial and oil markets with his statements to “escape the quagmire” trapping the United States and Israel.

We essentially can’t trust statements from the U.S. president that the war is going great, in fact the best a war has ever gone, and will soon end. Neither can we trust statements out of an under-attack Iran, where a terrible regime still shows no signs of collapse.

But it seems Trump has latched on to early contact between Washington and Tehran that are, at best, precursor steps toward talks. So while there are no talks, there are talks about having talks.

So that’s completely clear!

Stocks had sold off hard on Monday over Trump’s threat to intensify bombing. On Tuesday, the Hang Seng in Hong Kong is up 2.8%, the Kospi in Korea is up 2.7%, and the Topix has progressed to the tune of 2.1% in Tokyo. But Asian equities continue to trade well below their levels from the end of February.

An 'Out' With a Deal on Energy?

Where do we go from here? The likeliest “out” for the White House might be a deal on energy supplies, access to the Strait of Hormuz, and an Iran pledge not to develop nuclear weapons. But any such deal appears far off.

John Bolton, the former National Security Advisor turned Trump critic, has described the U.S. military strikes on Iran as “haphazard,” with the strategy “not well thought out.” And I would agree.

There was no clear ultimate goal going into the attack on Iran, and not surprisingly it’s therefore hard to say what would constitute success.

Bolton has long favored a regime change in Iran. But if anything, this crisis has revealed just how much power Iran still has, even without nuclear weapons, if it can maintain the threat of closing the Strait of Hormuz to throttle global oil supplies.

Indonesian markets are closed on Tuesday for the Eid al-Fitr holiday, known locally as the Idul Fitri festival. It marks the end of Ramadan, in the world’s largest majority-Muslim nation. Indonesian markets resume trade on Wednesday.

It would take a clear indication that Iran is at the negotiating table to send Asian markets significantly higher. For now, Asian stocks will continue to trade first and foremost on the price of oil, and secondarily on the pronouncements out of the White House, discounted for the lack of information about the actual situation on the ground in Iran.

Brave investors can use this downtime to position themselves in Asia’s top-performing tech stocks, availing themselves of a roughly 10% discount from their pre-conflict levels. But there remains scope for the conflict to worsen, or a long-term oil disruption to feed into higher inflation and potential recession.

At the time of publication, McMillan was long TSM.