Why Do Experts Think Emerging Markets Will Outperform?

Why It Matters

The rally offers investors higher returns and diversification while reducing reliance on overvalued U.S. stocks, positioning emerging markets as a growth engine for global portfolios.

Key Takeaways

• MSCI EM index up 33.6% in 2025
• Weaker dollar lowers cost of EM dollar debt
• AI chip makers in Korea, Taiwan undervalued
• Commodity‑rich EMs benefit from strong gold, copper
• Low‑cost EM ETFs provide easy portfolio exposure

Pulse Analysis

The 33.6% gain recorded by the MSCI Emerging Markets Index in 2025 marks its most robust year since the post‑crisis surge of 2017, comfortably beating the MSCI World’s 21.1% return. Analysts attribute the outperformance to a confluence of macro‑economic tailwinds: a depreciating U.S. dollar has eased the servicing burden of roughly $4 trillion of dollar‑denominated debt held by emerging economies, while the Federal Reserve’s rate‑cut cycle has further reduced borrowing costs. Even with geopolitical uncertainty in the Middle East, the prevailing dollar weakness remains a potent catalyst for continued capital inflows throughout 2026.

Beyond macro forces, valuations in many emerging markets now appear attractive relative to their developed‑market peers. Korean and Taiwanese semiconductor giants such as Samsung, SK Hynix and TSMC trade at forward price‑to‑earnings multiples well below those of U.S. AI leaders, offering investors exposure to the same artificial‑intelligence supply chain at a discount. At the same time, the asset class delivers genuine sector diversification: while technology dominates the U.S. equity landscape, emerging markets also provide exposure to commodities, consumer growth in India, and resource‑rich economies like Chile and South Africa, balancing portfolio risk.

Investors can capture this upside through a range of vehicles. Low‑cost index ETFs such as Xtrackers MSCI Emerging Markets UCITS or Franklin Templeton’s EM ETF offer broad market coverage with transparent fees, while actively managed trusts like Fidelity Emerging Markets or JPMorgan Emerging Markets Growth and Income aim to exploit country‑specific catalysts. However, exposure is not without risks: lingering dollar strength, policy shifts in China, or a resurgence of geopolitical tensions could compress returns. Overall, the combination of favorable macro dynamics, undervalued AI exposure, and diversified sector playbooks positions emerging markets as a compelling addition to forward‑looking portfolios.