CHARTING A NEW COURSE: WHY EMERGING MARKETS
ARE BACK ON THE INVESTMENT MAP – JULY 2025
Executive Summary
Emerging markets are developing economies transitioning toward industrialization and
higher income. Major constituents include China, India, Brazil, Mexico, Indonesia, South
Africa, Turkey, Malaysia, Thailand, and Chile. From currency tailwinds to structural reform and
technological dominance, emerging markets present a rich opportunity set as global capital
begins to rotate away from US-centric growth in search of other investment opportunities
that provide diversification and long-term upside.
Emerging Markets Outlook: Growth, Resilience & Innovation
The US dollar’s extended virtuous cycle—fueled by strong domestic growth and asset
inflows—is showing signs of exhaustion. As US GDP growth expectations lag global peers,
capital is beginning to seek opportunities elsewhere. History suggests that a weaker dollar
benefits emerging market equities, improving debt servicing conditions and stimulating
investment flows. With many EM central banks retaining monetary flexibility, the
environment supports renewed optimism for EM asset performance.
Source: Bloomberg
Global tariff tensions persist, but many EM economies have built natural buffers. Countries like India, Brazil, and Indonesia derive over 75% of equity revenues from domestic sources, limiting exposure to US-led trade disruptions. In China, tariffs have accelerated stimulus efforts, while Latin America benefits from relatively benign trade terms. Mexico, protected under USMCA, continues to thrive despite US dependency. Meanwhile, Southeast Asia stands to gain from global supply chain reshoring, aided by cost advantages and mature industrial bases.
China’s economic recovery is gaining traction, supported by targeted fiscal and monetary measures. While structural challenges in the property sector persist, real estate inventories are stabilising, and consumer stimulus is ongoing. Simultaneously, China’s position as a global tech leader is reinforced through breakthroughs in AI, EVs, and semiconductor manufacturing. With a focus shifting from aggressive growth to capital discipline, Chinese corporates are improving shareholder returns via dividends and buybacks. These developments point to a more investable and resilient Chinese equity market.
India stands out as one of the most structurally transformed EM economies. Long-term reforms in financial markets, infrastructure, and corporate governance have underpinned strong economic momentum. Domestic investors continue to support equity markets, while corporate India boasts high return on equity and low leverage. A pause in valuation expansion presents opportunities for selective investors. With falling inflation, a strengthening rupee, and robust balance sheets, India’s growth trajectory remains compelling in both relative and absolute terms.
Emerging markets are integral to the global technology ecosystem. Tech comprises over 20% of the MSCI EM Index, led by dominant players in semiconductors, hardware, and AI innovation. Taiwan and South Korea alone account for the majority of global advanced chip and memory production. Additionally, up to 75% of key suppliers to the “Magnificent Seven” US tech stocks are located in East and Southeast Asia. EM tech offers investors access to this growth theme at significantly lower valuations compared to developed market peers.