Emerging markets have been hit by a severe oil shock, but a powerful counter-narrative centered on Artificial Intelligence may provide a crucial buffer.
The turbulence began in early March 2026. As an escalating conflict in Iran disrupted traffic through the Strait of Hormuz, Brent crude oil prices shot past $100 per barrel. This acted like a sudden tax on energy-importing nations, triggering a sharp risk-off turn. Tech-heavy emerging markets, which had been performing strongly, were hit hard. For instance, between late February and mid-March, South Korea's market proxy ETF (EWY) fell over 14%, while Taiwan's (EWT) dropped more than 7%.
This downturn was particularly painful because it came just after a period of incredible optimism. Throughout 2025 and into early 2026, these markets had reached record highs, fueled by a global AI boom. Companies like TSMC announced massive capital expenditure plans—around $56 billion for 2026 alone—to build out AI and high-performance computing capacity. This AI-driven rally, however, left the markets exposed and vulnerable to a sudden macroeconomic shock like the oil spike.
Here is where the story gets interesting. According to investment bank UBS, this very AI boom provides the “only cushion” for these markets. First, the reasoning is that investment in AI infrastructure by global hyperscalers is not a short-term bet. It's a multi-year, structural trend driven by fierce competition and technological necessity. These companies have committed hundreds of billions of dollars to building data centers and securing advanced chips.
Second, this spending is relatively insulated from geopolitical noise. A temporary oil price spike is unlikely to derail a five-year plan to build out AI capacity. This creates a resilient and predictable stream of demand for the semiconductor and hardware suppliers concentrated in Taiwan and South Korea. So, while the broader market sentiment sours due to energy costs, the core earnings driver for the tech sector remains intact.
In essence, the emerging markets are caught between two powerful forces: a cyclical downturn caused by the oil shock and a structural tailwind from the AI revolution. The immediate future will depend on whether the AI cushion is strong enough to absorb the blow from high energy prices.
- Emerging Markets (EM): Economies that are in the process of developing and industrializing, such as Brazil, India, South Korea, and Taiwan.
- Capex (Capital Expenditure): Funds used by a company to acquire, upgrade, and maintain physical assets like property, buildings, or equipment.
- Risk-off: A term describing market sentiment when investors are moving away from higher-risk assets (like stocks) to safer ones (like government bonds).