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Investing.com -- The Israel-Iran conflict has sparked a rise in energy prices, but its impact on global stock markets has been uneven, according to Capital Economics.
“Much has been made of the overall lack of fall-out in stock markets from the conflict,” analysts wrote, noting that “the world economy is far less dependent on energy today than it used to be.”
The energy sector now comprises less than 4% of MSCI’s ACWI Index, “less than a third of its level in 2011.”
Despite this, Capital Economics highlights stark differences among emerging markets.
They explain that countries like Brazil and Hungary, where the energy sector has greater weight in local equity indices, and net fuel exporters like Colombia and Gulf states, “ought to benefit disproportionately from higher energy prices, all else equal.”
So far, the market performance has been mixed. “Colombia, Brazil and Hungary have been the three best-performing countries in MSCI’s EM Index,” analysts noted.
However, “the four Gulf countries – which are in close proximity to the fighting (and are therefore, for example, vulnerable both to potential disruptions to oil supply and increased instability in the region) – have faltered and underperformed its ACWI Index.”
Saudi Arabia, in particular, has seen “striking” underperformance, even amid rising oil prices. This suggests that geopolitical risk is outweighing the benefits of higher energy revenues in some regions.
Capital Economics cautioned that “what we have seen over the past week or so may not set the tone for the future,” adding that the trajectory of the conflict could yet reshape market reactions depending on how events unfold.