Top of the Morning: Emerging market equities - New drivers, new risks, and what to watch next

Top of the Morning: The landscape for Emerging Market Equities

The cyclical turbulence in emerging market equities is closely related to rising geopolitical tensions in the Middle East, which poses significant risks for energy markets, especially given the strategic importance of the Strait of Hormuz. Per the full note [source], the potential for supply shocks could have cascading effects on inflation and economic stability globally, especially for major importers such as China and India. The desk outlook suggests a base case where any disruption may be short-lived, with partial reversals anticipated as conditions stabilize. This nuanced view stands in contrast to the immediate panic seen in market responses, stressing a strategic position amidst volatility and providing a roadmap for traders to maneuver through potential pitfalls.

Top of the Morning: Emerging Markets - Performance drivers and risks

The desk believes that emerging market assets are staging a significant recovery after a prolonged period of underperformance, backed by favorable economic conditions and renewed investor interest. Per the full note [source], emerging market stocks have demonstrated impressive returns in 2025, outpacing the S&P 500 by 20 percentage points, with 35% versus 15% returns respectively. This trend is driven by broader economic growth, productivity gains from AI technologies, and a shift away from concentrated performance in a few sectors. As we observe this renewed enthusiasm towards emerging markets, our internal data indicates a supportive backdrop, with firm views increasingly aligning towards these markets as viable investment options.

Top of the Morning: Asia’s strategic edge - Diversification, resilience, and opportunity in a shifting world

Top of the Morning: Are emerging markets becoming less volatile than developed markets?

The desk's thesis focuses on the shifting perception of emerging markets (EM) regarding volatility, suggesting that these markets are becoming less risky compared to developed markets (DM). Per the full note [source], emerging market assets have surprisingly outperformed their developed counterparts in 2023 even amid escalating geopolitical tensions, defying long-held investment assumptions. This evolving narrative is bolstered by the performance metrics that indicate positive total returns for emerging market assets since the onset of the conflict in the Middle East. With increasing investor interest in EM equities, bonds, and currencies, market expectations may need to recalibrate as volatility readings are increasingly signaling stability in these regions.