Iran war tests Asian equities, private markets remain firm

Binaya Dahal

Journalist

23 March 2026

Escalating tensions in the Middle East have resulted in a sharp decline of emerging Asian equities, as the region’s heavy reliance on oil transported through the Strait of Hormuz heightens investors anxiety, according to research and ratings house, Zenith Investment Partners.

The sell-off has been compounded by a stronger US dollar and fading hopes for near-term interest rate cuts, with higher energy prices threatening to reignite inflationary pressures across the economies.

However, Zenith Investment Partners’ Investment Director, Damien Hennessy, said the asset class remains attractively positioned despite the headwinds.

“Our view remains that emerging market equities are set to climb in 2026 driven by an improving global cycle, improved external and internal balance sheets, a modestly weaker USD and more attractive valuations compared to developed markets,” Hennessy said.

“Emerging markets have lagged developed markets since 2021. It’s been one-way traffic in favour of the United States.

“But that has shifted over the past 12 months, as investors reconsider high valuations in US equities and rotate towards cheaper opportunities across Asia and other developing economies.”

Hennessy added the balance sheets in many emerging economies are also in stronger shape than in developed markets, with generally lower government debt levels and improving inflation dynamics.

But he cautioned that a prolonged Middle East tension could disrupt this trajectory by sustaining upward pressure on energy prices.

Meanwhile, private markets continue to attract strong inflows as investors seek exposure to asset classes once reserved for large institutions, including private equity, credit, infrastructure and property.

Zenith’s Head of Responsible Investment and Real Assets, Dugald Higgins, however, warned investors to be aware of the liquidity constraints of these asset classes.

“Private assets are less traded, less transparent, and often require active, hands-on management to realise value. Natural liquidity stems from the underlying assets, not the fund structure,” Higgins said.

“This shouldn’t be a disincentive to pursue attractive opportunities, but it should be done in a way that doesn’t make your portfolio vulnerable to shocks.”