Historically, emerging markets have typically made the headlines for political upheaval, war or economic struggles. However, 2025’s 33.5% return for the MSCI Emerging Markets (net return) index1 has brought emerging market equities into the collective investor’s awareness, highlighting the upside return potential and diversification benefits this asset class can provide to a globally-diversified portfolio. To that end, Moneta was fortunate to recently host Gustavo Medeiros, Head of Global Macro Research at Ashmore Group, a premier emerging markets asset manager, for a discussion on emerging markets. The informative discussion focused on current dynamics within emerging markets, current narratives on the US dollar, capital flows and select comments on specific emerging market regions. Below are summary highlights of Gustavo’s well-informed commentary on the current state of emerging market equities.
Macro Landscape in Emerging Markets
- Gustavo highlighted that emerging markets (EM) are currently in a favorable macroeconomic position, driven by significant reforms, fiscal consolidation, and improved monetary policy. Many EM countries now have stronger fiscal positions, more liberal currency regimes, and declining inflation, leading to more robust real GDP growth versus developed markets. This trend has been reflected by many more EM credit rating upgrades than downgrades over the past two years.
- The weakening US dollar since late 2022 has further supported EM asset prices, and the gap in economic growth between EM (excluding China) and developed markets widened to around 2%, and 3% including China in 2025.
- Since the COVID pandemic, EM countries have benefited from early monetary tightening and less aggressive fiscal stimulus compared to developed markets, resulting in more resilient, less indebted economies.
Shifting Global Capital Flows
- Gustavo discussed a recent shift in global capital allocation, noting that foreign investors have been heavily overweight US assets due to past fiscal stimulus and strong leadership in earnings growth, but this is now reversing.
- The US’s net international investment position has deteriorated from – USD7tn to – USD 28tn over the last 10 years. This is largely down to the ballooning international positioning in US equities. However, the dollar is now beyond its cyclical peak, with both private and official capital flows poised to rebalance toward Europe and EM, in our view. In fact, flows into EM equity and fixed income funds have picked up notably since the April 2025 ‘Liberation Day’ volatility shock.
- Europe, especially Germany, is increasing domestic investment in infrastructure, energy, and defense, creating new opportunities and aiming to reduce reliance on the US. This shift is expected to drive significant capital into under-financialized European EM markets, amplifying their growth potential. It will also likely lead to higher bond yields in the region, contributing to Euro strength against the US dollar.
Regional/Country Highlights
- Latin America: There is an ongoing trend toward more market-friendly governments, with the US now also incentivizing economic reforms and resource development in countries like Venezuela and Argentina. This alignment is expected to attract investment and support economic growth.
- China: The outlook is nuanced: China’s industrial and tech sectors are advancing rapidly, but the real estate market remains a drag on household sentiment. Ongoing reforms leading to a reduction in very high savings rates could support a recovery in consumption if real estate fundamentals stabilize. Regardless, China’s role in AI and associated industries is driving demand for resources and energy, benefiting EM commodity exporters and tech supply chains.
Investment Outlook for EM
- Gustavo noted that Ashmore’s internal research showed EM equities enjoy a historically attractive foundation to outperform given further potential dollar weakness and current EM stock valuations trading at a significant discount to US equities.
- Gustavo argued that the current environment is not fundamentally different from past cycles, but the scale of potential capital reallocation and the US’s changing foreign policy priorities (e.g., reshoring strategic industries, incentivizing resource development in Latin America and Africa) are notable factors that may continue to support EM equities.
1As of 12/31/2025. Source: Morningstar
© 2026 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment adviser does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.
Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.
Ashmore disclosures:
The information and any opinions contained in this document have been compiled in good faith, but no representation or warranty, express or implied, is made as to accuracy, completeness or correctness. Save to the extent (if any) that exclusion of liability is prohibited by any applicable law or regulation, Ashmore, its officers, employees, representatives and agents expressly advise that they shall not be liable in any respect whatsoever for any loss or damage, whether direct, indirect, consequential or otherwise however arising (whether in negligence or otherwise) out of or in connection with the contents of or any omissions from this document. Past performance is not a reliable indicator of future results. This document does not constitute and may not be relied upon as constituting any form of investment advice and prospective investors are advised to ensure that they obtain appropriate independent professional advice before making any investment.
Investors should consider certain risk factors peculiar to investing in Emerging Markets, before taking any investment decision. Emerging Markets (EM) carry risks as well as rewards. These require consideration of matters not usually associated with investing in securities of issuers or financial derivative instruments linked to securities of issuers in the Developed Markets. The economic and political conditions differ from those in Developed Markets, and may offer less social, political and economic stability. EM may be more volatile than more mature markets. The value of your investment could go down as well as up. In extreme circumstances, this could result in a total loss of your investment. EM may suffer from liquidity problems; changes in rates of exchange between currencies may cause the value of your investment to decrease or increase; operational risks of investing are higher than in more developed markets
