Investors poured over $600 million into emerging-market ETFs this week despite a market rout, signaling confidence that Middle East tensions won't derail risk assets long-term. The iShares JP Morgan USD Emerging Markets Bond ETF led flows with its largest inflow since December 2023, while the $28 billion iShares MSCI Emerging Markets ETF avoided major outflows even after a 5% slump.

Tuesday's buying came as the MSCI Emerging Markets Equity Index fell its most since April and currencies tumbled against a surging dollar. The war in the Middle East has disrupted what had been a stellar year for developing markets, which rallied as investors sought diversification away from US assets amid a weakening dollar. Year-to-date inflows into emerging-market ETFs have reached $46 billion, compared to just over $1 billion during the same period last year.

Emerging-market assets outside Asia rebounded Wednesday, with developing-world currencies up 0.1% and the Vanguard FTSE Emerging Markets ETF gaining as much as 0.5%. Eastern European markets and stock exchanges in South Africa and Saudi Arabia also recovered after reports that Iranian officials indirectly contacted the US about ending the conflict.