Emerging market equities are gaining traction as investors seek growth and diversification amidst a weakening US dollar and trade policy uncertainties. Europe-domiciled global emerging market equity funds saw their best quarter in net inflows since 2023, totaling EUR 11.6 billion in 2025. Passive investment vehicles are increasingly popular, with 45.4% of total assets in global emerging markets equity held in passive products.

The Morningstar Emerging Markets Index has outperformed developed markets, rising 19.4% in GBP since the beginning of the year. A mix of macro tailwinds, valuation catch-ups, and sectoral leadership have propelled emerging markets to their best quarter since 2020. Factors such as undervaluation, US dollar uncertainty, and positive sentiment towards lagging markets like China and Korea are driving this growth.

Goldman Sachs Research predicts continued growth in EM equity markets, with earnings from EM companies expected to increase by 9% this year and 14% in 2026. Emerging market companies are seen as less vulnerable to international trade friction, making them attractive in the current global environment. Long-term growth opportunities in sectors like technology, healthcare, sustainability, and consumer goods are driving investor interest in emerging markets.

Read more at Morningstar: Money Is Rushing Back Into Emerging Markets Stocks