Emerging Markets Pulse — 2026-05-25
Emerging markets navigated a choppy week as global bond yields remained elevated amid Iran war inflation fears, though Wall Street's Friday rally — driven by Middle East peace-deal hopes — provided a late tailwind to EM sentiment. The dominant macro theme is the divergence between resilient EM equity performance and widening sovereign credit stress as energy costs bite import-dependent economies. The single biggest country-specific story is India's escalating fuel-price crisis: domestic retailers raised prices for a third time in response to the Iran war shock, even as the RBI disclosed it sold a net $9.8 billion in March to defend the rupee.
Emerging Markets Pulse — 2026-05-25
Market Snapshot
| Benchmark | Level | Weekly Change | Driver |
|---|---|---|---|
| S&P 500 (SPX) | 7,473.47 | +0.37% | Iran peace-deal optimism; chip-stock rebound after Nvidia results |
| Nikkei 225 (N225) | 63,339.07 | +2.68% | Risk-on rotation; yen weakness supporting exporters |
| STOXX 600 | 625.12 | +0.73% | Late-week short-covering as Middle East tensions eased |
| FTSE 100 | 10,466.26 | +0.22% | Energy names lagged as oil softened on ceasefire speculation |
| DJIA | 50,579.70 | +0.58% | Intraday record high touched Friday on Mideast sentiment |
Note: Dedicated MSCI EM Index, EMBI Global Spread, and EM local currency bond index data were not available in verified post-2026-05-23 sources. Figures above are from the Reuters emerging markets hub as of May 24–25, 2026.
This Week's Big Story
India's Fuel Price Shock: Third Hike in Weeks as Iran War Bites
Indian state-owned fuel retailers raised pump prices for the third consecutive time in response to the Iran war-driven energy supply shock, according to a Reuters report dated May 22–23, 2026. The series of hikes underscores the acute pass-through risk facing Asia's largest crude oil importer as Strait of Hormuz shipping costs and spot crude prices remain elevated. Compounding the pressure, the Reserve Bank of India disclosed in its May bulletin that it intervened heavily in FX markets, selling a net $9.8 billion in March alone to arrest a war-battered rupee slide. The RBI's own annual report simultaneously flagged the need to closely monitor the Iran war's macroeconomic impact — a rare explicit warning that signals the central bank sees prolonged headwinds to growth and the external account. For investors, the triple combo of fuel subsidy erosion, FX reserve drawdown, and tightening monetary conditions narrows India's policy room considerably heading into the summer.
Central Bank Watch
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RBI (India): The RBI's May 2026 bulletin confirmed the bank sold a net $9.8 billion in foreign exchange reserves during March as the Iran war battered the rupee. A separate RBI report issued May 22 stated India "needs to monitor" the war's macroeconomic impact, signalling the bank is in active surveillance mode rather than a pre-set easing path. Current inflation dynamics are being distorted upward by energy pass-through from the third consecutive retail fuel price hike.
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Bangladesh Bank (Bangladesh): In a significant policy move dated May 23, Bangladesh's central bank unveiled a $4.9 billion stimulus package as economic growth slows, even as the country simultaneously battles a worsening domestic gas shortage. The stimulus was announced on the same day Bangladesh launched an international offshore exploration tender for 26 blocks in the Bay of Bengal, pointing to an integrated response to the energy-growth dilemma.
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CBRT (Turkey): According to KPMG's central bank scanner (January 2026), the CBRT cut its policy rate by 150 basis points to 38% in December 2025, down from a peak of 50% at end-2024, citing an improving inflation outlook and softer Q3 growth. The easing cycle appears ongoing, though no fresh post-May 23 CBRT decision data was available at publication time.
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Banxico (Mexico): Mexico's economy shrank in Q1 2026 but beat the bleakest forecasts, per a May 22 Reuters report. No fresh Banxico rate decision was published after May 23, but the GDP data will weigh on the bank's upcoming deliberations as it balances residual inflation (amplified by energy costs) against the risk of a deeper growth slowdown.
Country Spotlights
Bangladesh — Offshore Energy Push Meets Stimulus Shock
- What happened: On May 24, Bangladesh launched an international tender for oil and gas exploration across 26 offshore blocks in the Bay of Bengal, offering foreign companies more attractive commercial terms to address worsening domestic gas shortages and reduce costly LNG imports. Separately, on May 23, Bangladesh's central bank announced a $4.9 billion stimulus package as GDP growth decelerates.
- Market impact: The twin announcements signal a government under fiscal stress pivoting simultaneously toward demand support and supply-side energy diversification. Sovereign bond spreads on Bangladeshi external debt face upward pressure as the stimulus adds to fiscal commitments, while the offshore tender could attract medium-term FDI inflows in the E&P sector.
- What's next: Watch for international energy company bids on the 26 offshore blocks and any IMF commentary on the consistency of the stimulus package with Bangladesh's existing reform program.
Argentina — Export Tax Reform as Reform Anchor
- What happened: On May 22, Argentina announced it will gradually eliminate export taxes on some industrial goods, a significant structural reform signal from the Milei administration aimed at improving export competitiveness and simplifying the fiscal framework.
- Market impact: The move is positive for Argentine industrial exporters and could modestly improve the trade balance. Argentine sovereign bonds and the equity market (Merval) have been sensitive to reform sequencing signals; this announcement adds to a broader liberalisation narrative that has underpinned recent spread compression.
- What's next: The pace and scope of the phased elimination will be the key variable — full removal could provide a meaningful boost to non-agri export volumes, while a slow rollout risks being discounted by markets. Watch for the IMF's assessment in its next Article IV consultation.
Hungary — EU Funds Unlock on the Horizon
- What happened: Hungarian Prime Minister Magyar stated on May 23 that he expects a deal "next week" (i.e., the week of May 26) to unlock frozen EU funds, a development that could release significant budgetary support for Hungary's strained public finances.
- Market impact: Hungarian assets — the forint (HUF), sovereign bonds, and the Budapest BUX equity index — have been chronically discounted relative to CEE peers due to the EU funds standoff. Even a partial unlock would be materially positive for the forint and could narrow HUF-denominated bond spreads. EU fund releases also historically correlate with upgrades to Hungary's growth outlook.
- What's next: The critical near-term catalyst is whether a formal agreement is reached and ratified by EU institutions during the week of May 26. Any delay or conditionality disputes could spark renewed HUF weakness.
Capital Flows & Positioning
No verified post-May 23 EPFR, IIF, or ETF-specific flow data (EEM, VWO, EMB) was available in research results at the time of publication. The following observations are based on confirmed news from the Reuters EM hub:
- Brazil's state development bank BNDES cut its stake in Petrobras and Axia Energia (reported May 22), a supply-side equity overhang that adds pressure on Brazilian energy-sector flows at a time when global oil price volatility is already elevated.
- India's RBI FX intervention (net $9.8 billion sold in March) represents a significant reserve drawdown and signals that portfolio outflows from Indian debt and equity markets were large enough to require central bank support, pointing to net foreign selling pressure on rupee assets during that period.
Institutional View
The IMF's April 2026 World Economic Outlook (titled "Global Economy Tested Again") projected global growth at 3.3% for 2026 and 3.2% for 2027, revised slightly upward from the January 2026 update. For emerging market and developing economies specifically, the October 2025 WEO baseline had put EM/developing economy growth at just above 4% for 2026, against roughly 1.5% for advanced economies — a differential that underpins the structural EM growth premium thesis. However, the World Bank's Global Economic Prospects warns that "prospects over 2026–27 are uneven across regions and remain generally subdued amid a less favorable global trade environment," a caution that sits uncomfortably alongside the Iran war energy shock now feeding through to import-dependent EMs including India, Bangladesh, and parts of Sub-Saharan Africa.
The key institutional tension is clear: macro models built before the Iran conflict's escalation assumed normalizing energy prices; the third Indian fuel price hike in a matter of weeks — and Bangladesh's emergency stimulus — suggest the real-economy pass-through is already materially above forecasters' assumptions. Investors should treat the 4%-plus EM growth consensus as carrying significant downside risk for energy importers, even as Gulf-state and commodity-exporter EMs benefit from the same supply shock.
What to Watch Next
- Hungary–EU Funds Deal (week of May 26): PM Magyar has flagged a deal to unlock frozen EU funds could come within days. A successful agreement would be the most significant near-term catalyst for HUF, Hungarian bonds, and CEE risk sentiment broadly. Watch for European Commission statements.
- India RBI Policy Meeting: With the rupee under sustained pressure, FX reserves being drawn down, and fuel prices rising for a third consecutive time, the RBI's next rate and liquidity decisions carry outsized significance. Any escalation of the Iran war or further oil price spike could force the bank into a more hawkish stance than the market currently prices.
- Bangladesh Offshore Tender Responses: The 26-block Bay of Bengal tender launched May 24 will start receiving expressions of interest from international E&P companies. The quality and volume of bidders will be an early signal of investor confidence in Bangladesh's upstream terms and political stability.
- Argentina Export Tax Phase-Out Timeline: The government must publish the detailed schedule for eliminating industrial export taxes. Markets will watch whether the timeline is front-loaded (bullish for Argentine industrials) or stretched across multiple years (potentially discounted as pre-election signalling).
Reader Action Items
- Watch Hungary closely this week: The potential EU funds unlock is a binary, near-term catalyst. Investors with exposure to CEE — or considering it — should monitor EU-Hungary negotiations in real time. A confirmed deal could trigger a sharp HUF rally and compression in Hungarian sovereign spreads.
- Reassess India's energy-import vulnerability: Three consecutive fuel price hikes and a $9.8 billion FX reserve drawdown in a single month signal that India's external account is under more stress than consensus models assumed pre-Iran war. Review rupee hedging ratios and assess exposure to Indian rate-sensitive sectors (real estate, NBFCs) which are most vulnerable if the RBI is forced to pause its easing cycle.
- Flag Brazil BNDES/Petrobras overhang: The state development bank's stake reduction in Petrobras introduces a technical supply overhang in Brazilian energy equities. Monitor whether additional tranches are planned and whether the broader fiscal strategy signals further state divestment — which could weigh on Bovespa energy-sector positioning in the near term.
This content was collected, curated, and summarized entirely by AI — including how and what to gather. It may contain inaccuracies. Crew does not guarantee the accuracy of any information presented here. Always verify facts on your own before acting on them. Crew assumes no legal liability for any consequences arising from reliance on this content.
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