U.S.-Iran Deal Boosts Emerging Markets' Rebound, Spreading Gains to Non-Technology Sectors

Overview

This weekly report, released by Goldman Sachs, focuses on the strong rebound of emerging markets' stock markets amid the U.S.-Iran interim agreement and analyzes its subsequent trends. The report points out that despite the Fed's hawkish stance, the easing effect from falling oil prices has driven the MSCI EM index up 4% in a single week, with cumulative gains reaching 7% since the agreement was announced. Goldman Sachs believes that the narrow rebound previously concentrated in AI and tech stocks is broadening, and future beneficiaries will include oil-importing countries (such as the UAE, Egypt, and Turkey) as well as interest-rate-sensitive markets (such as South Africa and Brazil). Additionally, the report pays special attention to Colombia's presidential runoff election this weekend, noting that if a pro-market outcome emerges, Colombia's stock market still has room for short-term gains, though it faces fiscal and macroeconomic challenges in the medium to long term.

Core views

Market Performance and Drivers: After the U.S.-Iran interim agreement, market risk appetite has significantly improved. The MSCI EM index rose 4% in a single week and has gained 27.1% year-to-date. North Asian markets related to AI have led the rally, with South Korea up 14% and Taiwan up 5%; meanwhile, China (-3%) and Brazil (-2%) lagged behind among major markets. Goldman Sachs notes that since the agreement was announced, emerging markets' stock markets have accumulated a 7% rise, outperforming their developed-market peers. Spread of Gains Logic: Goldman Sachs expects that emerging markets' stock market gains will continue spreading from the AI/tech sector to broader sectors. Key beneficiaries include: 1) Oil-importing countries such as the UAE, Egypt, and Turkey in the Middle East and North Africa (CEEMEA), which will directly benefit from lower oil prices; 2) Interest-rate-sensitive markets such as South Africa and Brazil, which were previously suppressed by interest-rate revaluation but now offer attractive valuations and room for rebound. Colombia Election Special: Following the unexpected result of the first round of Colombia's presidential election, the Colombian stock market has rebounded sharply, with the COLCAP index rising 10% since the beginning of the month, led by the financial and utilities sectors. The market has already partially priced in expectations of a shift toward a pro-market government. Currently, Colombia's forward price-to-earnings ratio is 10 times, below its long-term average (11 times over the past 10 years, 14 times since 2009), and most major sectors are undervalued. Investor positions remain light (average allocation by active funds at 0.9%, about 15 basis points below MSCI benchmark weights), indicating room for increased exposure. Historical data shows that after right-wing or center-right candidates win, the financial and energy sectors tend to perform exceptionally well. However, in the medium term, due to a tough macro backdrop, the resumption of the rate-hiking cycle, and fiscal concerns, upside potential may be limited. If the election outcome falls short of expectations, recent gains could reverse. Capital Flows and Valuation: In one week, foreign capital saw net inflows of $6 billion into emerging markets, with Taiwan receiving $3.3 billion and South Korea receiving $1.7 billion. In terms of valuation, the MSCI EM index's forward P/E ratio is 12.0 times, 0.3 standard deviations below its 10-year average. Earnings forecasts for 2026 were raised by 0.3% last week. Goldman Sachs maintains an overweight view on Taiwan, South Korea, Brazil, South Africa, Hungary, and Greece, believing these markets offer diversified alpha opportunities.

Analysis framework

Goldman Sachs' analytical approach revolves around two main lines: 'event-driven' and 'fundamental spread.' First, by quantifying the impact of the U.S.-Iran deal on oil prices, it identifies oil-importing countries directly benefiting and interest-rate-sensitive countries indirectly benefiting, using valuation Z-scores and earnings risk-reward ratios to screen markets with the greatest rebound potential. Second, for the Colombia election, it employs historical election-cycle analysis, comparing market performance following governments of different political orientations (especially in the financial and energy sectors), combined with current valuation percentiles and fund-position data, to assess short-term trading opportunities and medium-to-long-term constraints. Finally, by tracking capital flows (FII flows) and earnings revision trends, it validates the sustainability of market sentiment, thereby constructing overweight/underweight portfolio recommendations.

Methodology notes

• Industry/sector analysis frameworkSupply-demand framework

  Differentiated Impact of Oil Price Changes on Emerging Market Countries

  The report uses the supply-demand framework to analyze the heterogeneous impact of falling oil prices on emerging markets: For oil-importing countries (such as Egypt and Turkey), lower oil prices reduce imported inflation and costs, improving trade conditions and providing a boost; for oil-exporting countries, the opposite is true. This analysis helps investors precisely identify beneficiary targets during macro events.

• Event Game Theory and Behavioral FinanceEvent-driven analysis

  Impact of Election Cycles on Market Performance

  By analyzing historical election data from Colombia, the report finds that after right-wing or center-right candidates win, the financial and energy sectors typically outperform over the next three months. This methodology turns political events into tradable market signals, helping investors anticipate asset-price fluctuations triggered by policy shifts.

• Valuation methodsPE/PEG valuation

  Valuation Comparison Based on Historical Percentiles

  The report uses the forward price-to-earnings ratio (NTM P/E) and its standard deviation relative to the 10-year historical average (Z-score) to evaluate market valuation levels. For example, it points out that Colombia's current 10x PE is below its long-term average of 11x, placing it in the undervalued range. This method provides a clear picture of how assets compare in terms of relative cheapness under current market conditions.

• Quantitative/Factor/Portfolio TheoryStyle factor analysis

  Interest-Rate Sensitivity Factor Stock Selection

  The report identifies markets such as Brazil and South Africa as highly sensitive to local interest rates (negatively correlated); when interest rates fall or are expected to improve, domestic cyclical stocks and interest-rate-sensitive stocks in these markets tend to outperform the broader market. This is a typical application of macro factors for cross-market stock selection.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• MSCI Korea/Taiwan

  Benefit: Strong demand for AI infrastructure and semiconductors, large foreign capital inflows

  Strengths

  Core position in the AI industry chain, high earnings growth forecast (Korea's 2026E EPS growth 292%)

  Weaknesses

  Relatively high valuation, high dependence on global tech cycles

  Comparison

  Compared to South Asian markets, North Asia offers better earnings/valuation risk-reward

  Risks

  Slowing global tech demand, geopolitical risks

• MSCI Brazil

  Benefit: Interest-rate-sensitive market, central bank rate cuts, oil-price relief

  Strengths

  Cheap valuation, room for foreign investor position increases, favorable interest-rate cycle

  Weaknesses

  Fiscal deficit issues, political uncertainty

  Comparison

  Compared to other Latin American markets, Brazil is more sensitive to interest rates and has greater elasticity

  Risks

  Worsening fiscal situation, inflation resurgence leading to renewed rate hikes

• MSCI South Africa

  Benefit: Interest-rate-sensitive market, rebound in domestic cyclical sectors

  Strengths

  Extremely attractive valuation, support from mining sector

  Weaknesses

  Structural economic problems, unstable power supply

  Comparison

  Similar to Brazil, it's an interest-rate-sensitive rebound target

  Risks

  Fluctuations in global commodity prices, domestic policy implementation risks

• Colombia Equities

  Benefit: If the election outcome is pro-market, financial and energy sectors will lead the rally

  Strengths

  Valuation at historic lows, low foreign investor allocation, strong short-term momentum

  Weaknesses

  Medium-term fiscal concerns, high implementation risks

  Comparison

  Short-term event-driven opportunity, unlike North Asia which has solid fundamentals

  Risks

  Election outcome falls short of expectations, unsustainable fiscal policies

Key data

• MSCI EM Index Weekly Gain4%Driven by the U.S.-Iran deal, cumulative gain since the agreement's announcement is 7%
• South Korea Stock Market Weekly Gain14%North Asia AI-related sectors lead the rally
• Taiwan Stock Market Weekly Gain5%North Asia AI-related sectors lead the rally
• Weekly Net Foreign Capital Inflow$6 billionMainly flowing into Taiwan ($3.3 billion) and South Korea ($1.7 billion)
• MSCI EM Forward P/E Ratio12.0x0.3 standard deviations below the 10-year average
• Colombia COLCAP Index Gain Since the Beginning of the Month10%Boosted by the first-round election results
• Colombia Forward P/E Ratio10xBelow the 10-year average of 11x, compared to an average of 14x since 2009

Impact & implications

The report believes that the oil-price relief brought by the U.S.-Iran deal is the primary driver behind the recent strength in emerging markets' stock markets, and this positive impact has yet to be fully digested. For investors, this means investment opportunities are spreading from crowded AI/tech stocks to broader value stocks and cyclical stocks. Particularly for oil-importing countries and interest-rate-sensitive markets, current low valuations provide a good margin of safety. The Colombia election represents a short-term event-driven opportunity—if the outcome meets market expectations, it could bring further valuation recovery, though medium-term fiscal risks should be watched closely. Overall, emerging markets still offer outstanding cost-effectiveness in global asset allocation, especially compared to the overvalued U.S. market.

Risks

• The Fed continues its hawkish policy, tightening global liquidity
• If Colombia's election outcome turns out to be non-pro-market, triggering a stock market correction
• Colombia's medium-term fiscal situation worsens, increasing implementation risks
• Escalation of geopolitical conflicts negating the oil-price relief effect from the U.S.-Iran deal
• Global economic slowdown affecting emerging markets' export demand

What to watch

• The outcome of Colombia's presidential runoff election and its impact on market sentiment
• The Fed's subsequent monetary policy moves and interest-rate path
• International oil price trends and their impact on emerging markets' inflation and trade conditions
• Changes in foreign capital flows into emerging markets, particularly adjustments in allocations to North Asia and Latin America
• Earnings revisions of emerging-market companies, especially signs of earnings recovery in non-tech sectors