Iran Conflict Puts the Emerging-Markets Revival to the Test

The war in Iran has dealt a blow to one of Wall Street’s favorite trades — emerging markets.

Stocks and currencies have seen steep losses, with the MSCI equity index posting its biggest weekly drop in six years, and bond yields have jumped. Even so, money managers at firms including Pacific Investment Management Co., Barings LLC and T. Rowe Price Group Inc. argue the longer-term case for emerging markets remains intact. While some are tweaking portfolios at the margins, most are holding off on major shifts for now.