Potential Iran Deal Impact May Benefit These Markets

While it may have been in the headlines for weeks without conclusion, a U.S.-Iran deal may be actually nearing — for real this time. Markets have been anticipating some kind of arrangement to reopen the Strait of Hormuz for some time. The sheer complexity of the relationships between the U.S., Israel, and Iran has made resolving the war difficult, but if reports are true and a deal is in the offing, some important markets may be poised to benefit.

Key Takeaways:

• Could emerging markets see an outsize benefit from a potential Iran deal? Those nations do often import significant amounts of fuel.
• Funds like GEM could then be a strong route into emerging markets, if a deal does come to pass.
• The strategy’s multifactor, proprietary index approach has helped it outperform in recent months.

Specifically, emerging markets economies could be standout candidates for a jump, if fuel prices can see a light at the end of the tunnel. Prior to the U.S.-Israel-Iran conflict, investors were flocking to ex-U.S. equities and offerings for their lower valuations and diversification away from the United States. 

While that positivity may have been somewhat interrupted by global volatility, a deal would potentially boost emerging markets equities prospects. Many emerging markets rely heavily on imported fuels, making the current closure of fuel shipping out of the Strait a serious headwind.

There are plenty of ETFs that investors can consider to get exposure to emerging markets amid that potential upside. Goldman Sachs Asset Management offers funds like GEM and GSEE that do just that. The Goldman Sachs ActiveBeta Emerging Markets Equity ETF (GEM) provides a key example.

GEM, for example, charges a 35 basis point fee to track a proprietary index. The emerging markets ETF uses a multifactor approach, seeking stocks with momentum, good value, high quality, and low volatility. 

That has helped the fund outperform the ETF Database Emerging Markets Equities Category average over all available time frames in ETF Database data. It has outperformed over the last 12 months, three and five years, and as YTD. Specifically, it has returned 51.8% over the last year, compared to the category average of just 38.1%. 

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The strategy has also seen its price rise above both its 50- and 200-day simple moving averages. That traditionally indicates a buy opportunity as well as healthy momentum. Overall, if an Iran deal is struck to reopen the Strait, emerging markets could be an area that sees notable positivity for the rest of the year, making a fund like GEM one to watch.

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