ETF Edge - Reassessing international markets amid geopolitical volatility 3/2/26

Episode Date: March 2, 2026

Will conflict in the Middle East and continuing tariff turmoil dampen international market outperformance? Find out which regions are at risk and which are in promising positions.   Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge podcast is sponsored by InvescoQQQ. Let's rethink possibility. Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange, traded funds, you're in the right place. Every week we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for investors. I'm your host, Dominic Chu.

Middle East conflict and ongoing tariff uncertainty is weighing on recently outperforming international markets. So how should ETF investors handle that particular part of the investing spectrum right now? Join me now for the conversation are Malcolm Dorson, head of active investment team and senior emerging markets portfolio manager at Global X funds alongside Cynthia Murphy, Director of Research over at VETify. Thank you both for being here with us right now. Malcolm, I'm going to start with you because this is kind of like law and order style rip from the headlines, right? The weekend was wrought with headlines and not in a good way surrounding geopolitical risk. The U.S. and Israel have made a conflict with Iran even more on the front burner

now with attacks there and the subsequent retaliation by Iran against assets throughout the Middle East. I guess my big picture question to start things off is, Malcolm, has this changed the landscape for global investing? the question. You're right. It's been a busy weekend filled with headlines. That said, I think it was pretty well telegraphed. If we looked at names moving on Friday, Thursday, Friday, Middle East names were down four or five percent, energy was up, market was starting to expect this. And for context, the Middle East represents only about five percent of emerging markets. So yes, of course, with shorter term higher oil prices, you have a few different views, you might make a few

tactical changes. But big picture, what does this mean from my perspective? It means more uncertainty from the U.S. It means more spending out of the U.S. And ultimately probably fuel to fire in terms of that weaker dollar, stronger EM equity trade. So we think it might be time to double down. Even if we've seen things moving

the way that they have, in terms of the dollar strength, which has been a big thesis, right? The dollar strength had been a big proponent or the reason why the U.S. trade was so good. We've seen the dollar decline, more medium term, over the course of the last year or so,

which has been a tailwind, right, for many of these kind of emerging market type use cases. Does this near-term dollar strength on the heels of the conflict change at all what your calculus is? If the conflict lasts longer and longer than expected, for sure, if this turns into higher oil, higher inflation, higher interest rates in the U.S. leading to a stronger dollar, that could certainly be a headwind. It's not our base case. if anything, you've seen things start to revert already. Overnight, people were saying oil's going to open up 10% higher. It's about 5% and change percent higher now.

People are already pricing in what's next. A lot of people are trying to say this is going to be over in a week or two. We're not sure. However, I do think there are a lot of reasons to take advantage to buy the dip here. All right, Cynthia, you've seen some of the price action so far today with regard to how things have reversed course. Whether or not that stays that way, going into the closing bell today remains to be. be seen. We don't have crystal balls. But has anything about today's price action, the kind of deeper losses that we saw in the futures markets pre-market, to this turnaround where we've actually

seen the NASDAQ and the S&P get into positive territory. That's a big reversal. What does that say to you about where investor sentiment is, even with the heightened risk of geopolitical conflict? Actually, Dom, I think if we think about where we were last year, we start to get used to the concept of geopolitical heat. It's what put the defense theme, so in focus starting last year. So maybe it tells me that we've already kind of grown accustomed to a little bit of geopolitical noise. And unless, to Malcolm's point, this proves to be a really lengthy conflict, we are kind of, you know, ready to just roll over and, and, and, and, moving business as usual as much as we can because that risk is already kind of built into the market how do you think Cynthia you mentioned the markets and their reaction to this because we've

kind of seen this play out before how much do you think investors are becoming more sophisticated or or even more seasoned perhaps that's the best way to look at this that they've seen this kind of story play out before and they've seen it resolve itself but now those resolutions whether they're they're the bouncebacks that are more V-shaped in recovery. Even those V-shaped ones seem to be happening a lot faster than they have in the past over the course of the past 10 or 20 years. What does that say to you about just where the investor kind of sentiment is right now and then how they've used prior experiences in history to kind of color their decisions in this

moment? So coming into this year, we actually did a survey with advisors and asked, you know, where do you want to put money to work in 2026? despite everything that we've been talking about, uncertainty, tariffs, geopolitical tensions, and over 75% said equity risk. So I think that appetite for risk remains dominant, and we're looking for those opportunities. Number two is that we've seen a lot of broadening diversification into things like thematic exposure.

So if you think of the conflict this weekend and the focus on, you know, the defense opportunity, how many folks are already invested in that? We've seen that started to happen last year. So I think this broadening of the diversification we've been seeing in the last year, we're seeing it now. Folks aren't so reactive because they feel like they're already well positioned for some of these opportunities in the market. Malcolm, you're a portfolio manager, which means that you have to pay attention often to these types of developments, and you have to figure out whether or not these types of developments warrant significant changes in view, significant readjustments to your investment models or theses.

I wonder from your perspective, Cynthia mentioned the kind of risk-taking mentality we have. Are these opportunities ones that we have to look a little bit more, be more discerning about, I guess, is the best way to put it. These international-type markets, these emerging markets in particular, are they ones that require more homework on your part to make sure that you are finding the best available opportunities? I think so.

For sure, Don. And it's not only on my part, it's in the position of broader allocators. If you look at the index within emerging markets, it's still roughly 80% Asia, close to 30% China. And then number two or number three, looking at huge exposures to Korea and Taiwan, which have done really well recently. But that gives you a lot of concentration risk. These are importers of energy as a whole. So I think big picture, people are looking for smaller pockets, either active strategies or single country strategies, and they're trying to figure out what's next. A lot of allocators have exposure to technology, to growth, and they're looking for a more bar-belled approach. So they're looking for more value, more cyclicality, and they're finding it in Latin America. So I think that's one area where we're really doubling down on, countries like Argentina.

We have a strategy there that tickers ARGT, Brazil, the tickers BRAZ, and Colombia as well. These countries are checking the box in terms of value, high single-digit, P-E multiples, growth, exposure to commodities, and carry. So put that all together, you have this exposure to what's going to do well with elevated commodity prices without the geopolitical risk. And it's a really interesting place to be. How much of that is specifically is a kind of purer play on a relative basis on that kind of commodity trade that we are seeing right now? When you look at, say, investing in Argentina, Brazil and Colombia, even more so, kind of resource-heavy countries that are dependent on the cyclicality around commodities and their prices.

Are those mostly the types of companies that you were finding in a Latam strategy, or are there other types of names that show up that may be surprising for investors out there investing in a place like Brazil, Colombia, or Argentina? It's an important part of the story, but it's not it. I'd say 25 to 33% of the story should be that attractiveness of getting exposure to commodities. But Latin America as a whole has a fantastic reform story behind it right now from a political perspective. Two years ago, we saw Javier Malay and Argentina kind of take over from Pironism and Kirshnerism, really bringing the political pendulum back to the center right.

A lot of people think that Colombia could be Argentina 2.0 and the forthcoming elections we're having in May. Brazil has elections this coming October, and all eyes are on political change that could drive fiscal reform, reducing risk premiums, and more flows into these countries. So politics is the other part. The other part is just valuations. You're getting dividend yields 6, 7%, PE multiples at a 50% discount account to the S&P. And in addition to that, carry. Brazil overnight rates are at 15%, with inflation around 4, 4.5%. So one of the most positive real rate environments in the world,

giving you stability from a currency perspective. How do you juxtapose that with the Asian emerging market trade, which is not as tilted in many of those markets like Korea, Taiwan, elsewhere, towards the commodity story and maybe more levered towards the technology or, dare I even say, the AI story these days. How exactly from an emerging market's portfolio manager's perspective, then do you kind of allocate or pick or discern where the fundamentals may be relatively more attractive in a place that is more geared towards things like the tech and AI trade or more

resource-dependent type stories? I think you need to have both. I mean, we've already kind of covered Latin America. That's giving you diversification. It's giving you exposure to an underowned part of the world. But Korea, Taiwan, the tailwinds behind the companies that we're seeing there are very strong. It's not just AI as a whole. It's the AI ecosystem. So whether it's the memory cycle, whether it's semiconductors, and top that all off with sort of capital market reforms that we're seeing in Korea with heavily discounted prices compared to what's already worked in the U.S. people are very interested. So we're using a barbell approach to have both sides overweight,

but I think what's overlooked is very interesting are countries such as India, which was really just a gem of a market up until last year for the previous five years. It was a market laggard last year. It's come into the year underperforming by about for the first two months of the year this year. But if you see what's happening with India, GDP growth is at 7.8%. inflation rates, low single digits, the central banks cutting rates, fiscal stimulus is strong, you have a very market-friendly government, and these elevated gold prices, 20 plus percent of household savings lie in gold in India. So consumer confidence is through the roof, and I think right now India is a really interesting

overlooked place to see. Now, Cynthia, from your perspective, you track a lot of the flows that kind of move around these ETF markets. Does some of what Malcolm is saying kind of reconcile with what you're seeing from an activity perspective in terms of where investors are actually putting their money or where the flows are kind of the hottest, so to speak, and what can you glean from where those flows are that tell you that that maybe international, global, and a verging market story is going to still be intact for a while? So there is no question that international has been the flavor of the year.

When you look at ETF flows, you look at top 20, over 40% of flows have gone into international ETS. Emerging markets especially have been leading the charge there. It's a percentage amount we haven't seen in many, many years. So international equities have been the biggest opportunity. We've seen folks tie money to this year. I think it would be interesting to see, you know, maybe this conflict won't last and it won't change that dynamic. but if it lasts, it could put this trade into question because the U.S. tends to be a strong hedge in a conflict situation.

It tends to be a stronger place to put your money to work. So I'll be curious to see if this trend holds, if there's a conflict that's ongoing. And I think the energy play would be really interesting because energy is a big part of the commodities heavy story. It's part of the international European market. It's super dependent on energy and oil coming out of the Middle East. So I think it could really shake things up a lot.

And I think on the energy, I'm really curious to see folks are going to target, say, an oil fund like USAO and get that immediate impact on the price there. If they're going to go for an energy equity, like an ex-LE, and just play that equity side and just take the equity risk. Or if they're going to go to something like AMLP, which is your MLPs, your pipelines, which is a, more stable, lower vol play that gives you an 8% yield. So I'm curious to see how folks are going to play this energy story in the context of international conflict. All right.

So Malcolm, with that in mind, if you look at the way things are playing out within that ETF world, there's been a huge, huge movement over the course of the last few years, markedly so, but arguably maybe the last seven to ten years, this kind of move towards actively managed ETFs, fund strategies, versus some of the passive index-seeking ones. Cynthia mentioned some of the ways to play these themes with more passive or, you know, price-based, you know, exchange-traded products that track things like the commodity markets. There's also active management when it comes to things like international investing and emerging markets in particular. What exactly is going to be, you think, the big driving

force behind that EM trade? Will it be people just seeking index exposure? or those who turn the picking aspect over to portfolio managers to actually kind of try to achieve superior returns? I think it's both. I think some people are doing it tactically from a passive perspective, but when they do so, they're doing it in a very targeted manner. So going to specific countries, whether it's, okay, I see what's happening in Venezuela, a potential regime change.

It's a sanctioned country. I can't invest. I need a proxy. So they're buying Colombia. Whether it be plain an election, as they did with Argentina, a couple of years ago as they did with the midterms just a few months ago, or what they might do in Brazil in a few months from now. So big picture, I think that many allocators are being targeted are targeting from a passive perspective. But when you're looking at your long-term exposure of

what's going to be in your broad core asset allocation, most investors don't have the capacity to follow what's going on in the 27 different countries, currencies, political systems across emerging markets. So they want to trust an active manager. So that's the type of appetite we get in our EMX China strategy, EMM, people coming to us and please monitor this sleeve of the portfolio for us. Tell me when to be overweight China, when to be underweight China. And now you can do it in an ETF. You get the benefits of the tax structure, the lower fees, the transparency, potential tax efficiencies, and much more of that wrapper. So that's the popularity really is gaining steam. Now, if I could follow up, Malcolm, you mentioned some of the kind of

outperformance that you're forecasting for the Latam trade in comparison to other parts of the world, are there certain specific types of companies that you're paying close attention to with regard to where you think there might be future outsized returns? Are you looking more towards people talk about factors like momentum and growth? They talk about value, you know, dividend yields and that sort of thing. What factors are you the most focused on and what types of companies do you think? Are you value shopping for some of these names now, or do you feel as though some of the names that have had momentum that have stalled out a bit recently still can resume that momentum again? Yeah, we're a little more cautious on the momentum trades, on the big semiconductor trades,

on the memory names that we're seeing out of Korea and Taiwan, a little bit more, leaning more towards value, more towards cyclicals, whether it be across commodities, within commodities, we like copper, we like energy and we like gold. But I'd say our biggest overweight from a sector perspective is going to be financials. Financials, so I mentioned Latin America, this potential rate-cutting opportunity with extremely high positive real rates. So as rates start coming down, net interest expenses are going to come up across the board, but for financials, you're going to see improved asset quality, people borrowing more, capital market activity really picking up. So we think that's a sweet spot

within Latin America. And Cynthia, before we let you go, what exactly do you think is going to be the thing that you're going to be watching most closely for in the next, say, three to six months, given the fact that we've seen tariffs kind of evolve and get re-uped. We've seen political developments on our side here in the United States. And now we've seen geopolitical risks emerge in the Middle East yet again. What do you think is going to play out for these fund investors in the ETF business as things shake out for 2026? Yeah, I think we've seen from a factor perspective quality work really well, not only deliver, but also investors really flock to quality as kind of your defense play.

I mean, the trick is quality has gotten a little expensive because, you know, most of Meg 7 companies fell into that quality bucket. So you have to be valuation aware. But when we look at ETFs that have really delivered on the active management space, to your point, Dom, you know, funds from like Avantis and Capital Group, they focus on that quality, but they're very valuation aware. So anytime you're blending those things together, has worked really well.

We're going to be looking for that space to continue to do well. And we'll be watching this international trade. I've been fascinated by it in the last 18 months or so. And I want to see how far it goes. It's been exciting to see folks diversify from that, you know, U.S.-centric exposure. And we'll see what the latest news does to that place. So I'll be watching that trade. Here's my conversation with Malcolm Dorson, head of active investment team,

and senior emerging markets portfolio manager at Global X funds, alongside Cynthia Murphy, the Director of Research over at VETIify. Now it's time to round out the conversation with some thoughtful analysis and perspective to help you better understand ETFs with our Markets 102 portion of the podcast. Cynthia Murphy, Director of Research over at VETI, continues with us now. I'd like to, Cynthia, pick up the conversation kind of what we left off in the ETFEd show this week. And that is to talk a little bit about just how investors, whether they be retail or on the investment advisory side of things, are viewing the current investing environment now that we have

developments on both the tariff front or I guess the evolution of the tariff front and now geopolitical flare-ups in the Middle East, in Iran in particular. Has that shifted the way some investors are viewing the investment environment right now? And if so, how for each particular cohort? Tom, that's a great question. I think the number one concern for advisors has been managing risk. As you know, that is the basis for building portfolios. And risk has been so all over the place in the last year or so between tariffs, conflicts, geopolitical heat, all of these things. And so there has been this constant looking for how much equity risk do I take, how much do I lean into? say the AI thematic opportunity or how much do I trim that because it's overrun.

I think in the last few months we've seen the international equity space really rise as an opportunity from a valuations perspective, a diversification perspective, an earnings growth perspective, and a lot of money flocked into that year to date in 2026, about 40% of equity flows have gone into international funds, which is a phenomenal number. So we'll be watching to see, is that going to last, if folks perceive that to be riskier than tilting back towards U.S., you know, more stability, stocks, quality stocks, if there's a world conflict going on. So it will be a shifting of that risk allocation if the conflict persists.

If it doesn't persist, there's no reason for us to really see a deviation from this trend we've seen international equities because it's working. I mean, the performance is phenomenal in European equities, Asian equities, emerging market equities, versus the U.S. So unless something derails this moment right now, which it could, there's no reason for it to change. So managing their risk has been the key concern for advisors everywhere for sure. How about that momentum story then? I mean, for the longest time, those international markets have been underperformers versus the United States. And in the course of the last 12 to 18 months, we've seen a gradual course reversal where more people have now started to allocate towards, you know, international equities in emerging markets in particular.

But anyone who's looked at the charts for some of these emerging markets funds, whether they be debt or equity, have already seen a fairly steady rise over the course of the last year or so with regard to how these performances have been captured. I guess my question to you is, is it too late to get into these investments? And it sounds like you're not as negative on it. You think that it has more room to run. But I wonder, what do you think that the driving forces will be behind any potential or hypothetical continued upside for these emerging markets if we've already seen such great performance over the course of the past year? Well, I think performance usually drives inflows into some of these ETFs.

people like to chase performance. And in the international space, it's almost like last year when the flow started going into that space, we're all like, is this going to be just a flash in the pan? Is it going to persist? We talk about, you know, we should allocate an international, and nobody ever does it really significantly.

And then we saw it and we're seeing it more because performance has been persistent. I think if performance falters, then folks are very quick to take the foot off the paddle and go back to their domestic bias. bias because they know that works. And if you talk to most people out there, asset managers, market experts, nobody has really a pessimistic outlook on the U.S. You know, strong earnings growth expectation, growth continuing, rate cuts potentially coming up. So, you know, there really is no

reason for you to give up on your U.S. exposure on that equity risk here because it's looking good. It's growing well. This really is a diversification play. And if the performance is in there, we may see, I know, folks kind of lose interest in that space. Have you seen fund flows at all that gravitate in certain specific areas? You know, our conversation with you and Malcolm kind of centered around some of the geographies that are seemingly more opportunistic right now. Are you seeing that play out in terms of ETF flows that you guys watch? Are there certain geographies or certain parts of the market industry-wise that are getting

some more of that attention? Yeah, on the geographical play, if you look at equity flows so far this year, you know, a fund like VOO from Vanguard, it's taking a massive amount of 10% of equity flows or at 10% of flows are all into VOO. So the S&P 500 play remains strong. And then you have IEMG from I shares, your emerging markets, ETFs, massive inflows this year. We'll continue to see some money into international developed VXUS, for example,

So its money has been going across the board. On a single country perspective, South Korea has been a big, interesting play, Japan has been a really interesting play. So there are some pockets of single country exposure, but for the most part, we see folks adopt your broad portfolio exposure and so that they capture everything

and don't have to make single country bets. But we're definitely seeing a large percentage going into those funds. And one final question for you with regard to just how, investors both retail and RIA's investment advisors are viewing the emerging debt versus the emerging market equity story. How exactly do you see that playing out? We're seeing appetite for emerging debt. We saw a lot in the last couple months. It's a little bit as a dollar play is, you know, different paths to the yield curve in these different spots, especially places like Brazil and

Argentina. So it's that hunt for yield has been really high. In the U.S., we've seen that proliferate beyond just U.S. fixed income, you know, appetite for things like derivative income has been huge. So other sources of yield. So anything that has to do with that yield play, folks are chasing that highest yield possibility for the little amount of risk they can take. So not a lot of duration. And emerging market bonds have delivered yield on that front. So we're seeing appetite to go into that space as well. All right. Well, that does it for the ETF podcast. Thank you so much, Cynthia, for joining us. We appreciate it. And thank all of you for listening. Join us again next week or just head over to etfedge.cmbc.com. We'll see you next week. Over the last few decades,

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