From Yahoo Finance: 2025-03-26 20:42:00

Investors are optimistic about the future of emerging markets, with concerns over the US economy driving interest in the long-neglected asset class. The recent run in EM equities has been fueled by a weaker dollar and rising index of developing currencies, making the assets of many countries appear cheap compared to US equities.

The current rally in emerging markets could be dependent on the trajectory of US growth and how it impacts Treasury yields and the dollar. Investors are hoping for a tariff-induced cooling of the US economy that doesn’t lead to a significant slowdown in global markets. European spending and Chinese stimulus are also factors that could support EM growth.

Assets in many emerging markets are considered inexpensive compared to the S&P 500, with net asset inflows into dedicated funds yet to turn positive in 2025. The shift away from US equities could be a long-term trend, according to analysts, with many investors overexposed to American assets. This could provide room for growth in EM stocks, bonds, and currencies.

Investors are keeping a close eye on emerging European countries, Latin America, and countries like Indonesia, Philippines, and South Korea for potential investment opportunities. The unwind of US exceptionalism and a weaker dollar are seen as positive factors for EM assets. Most emerging currencies are up against the dollar this year, with some countries like Brazil, Chile, and Colombia seeing significant gains.

While there are factors that could derail the positive outlook for emerging markets, such as a stronger-than-expected US economy, investors are optimistic about the current situation. Some fund managers are holding positions in emerging market bonds while maintaining higher cash reserves in case of a US economic resurgence. Overall, many investors believe that EM assets are looking promising for now.

Read more: Bets on US Weakness Are Fueling a Rally Across Emerging Markets