JPMorgan Revises Emerging Markets Outlook Amid Heightened Iran Tensions

JPMorgan Chase & Co. Adjusts Emerging-Market Recommendations Due to US-Iran Conflict

In response to the US attack on Iran, JPMorgan Chase & Co. has reduced the scale of its overweight recommendations on emerging-market currencies and local bonds due to the associated risks. The bank's strategists, led by Jonny Goulden, Anezka Christovova, and Arindam Sandilya, cited negative but limited market reactions in emerging markets on Monday morning as an opportunity to reduce exposure.

The strategists have cut the weightings of recommended overweight positions on emerging-market currencies and bonds roughly in half, with the possibility of further reduction or addition in a shorter timeframe than usual due to the unpredictability of armed conflicts. The MSCI benchmark for developing currencies slumped 0.9% on Monday morning, with the Hungarian forint and Polish zloty experiencing the largest declines.

JPMorgan Chase & Co. has reduced bullish calls in the Hungarian forint and Turkish lira by half and halved its overweight calls on South Africa and Romania local rates. However, marketweight recommendations in sovereign and corporate credit remain intact, with an underweight position in the Middle East. The bank remains bullish on Latin American currencies and rates, citing the region's lower exposure to oil prices and stronger carry buffers.

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The duration of the conflict and its potential aftermath are key factors to consider, with high uncertainty surrounding the risks of a greater spillover to the global economy via oil and to regional business.