Top of the Morning: Emerging Markets - Performance drivers and risks
At a Glance
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.
Key Takeaways
- 01Emerging markets have significantly outperformed developed markets year-to-date.
- 02AI-driven productivity gains could broaden the performance spectrum across emerging economies.
- 03The recent surge in interest may signal a renewed confidence from global investors.
- 04Alignment among leading firms suggests a consensus bullish outlook on emerging markets.
Full Analysis
What the desk is arguing
The desk's central thesis posits that the long bear market for emerging markets may have finally turned a corner. Recent performance data shows emerging market stocks have returned 35% year-to-date, significantly surpassing the S&P 500's 15% gain, a shift likely to attract further investment interest going forward.
Supporting this view, the commentary highlights a favorable global economic environment that supports earnings growth both in the U.S. and internationally. As Alejo Czerwonko of UBS notes, productivity improvements driven by AI are expected to benefit a broader range of countries and industries, which is essential for the overall performance of emerging markets.
Where it sits in our coverage
Our internal consensus target for emerging market assets places them at 1.075, with a range from a minimum of 1.04 to a maximum of 1.12. Key firms supporting this outlook include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This perspective aligns closely with jpmorgan, which holds a slightly more aggressive stance at the upper end of our consensus range, while bofa presents a more conservative view of the outlook.
How other firms see it
Several firms are on board with this optimistic outlook for emerging markets, especially those aligned with rising performance trends. For instance, jpmorgan and ubs are bullish on potential returns driven by broadening economic growth across emerging markets. In contrast, bofa remains skeptical, reflecting caution around external factors impeding these assets' performance.
Key currency pairs to monitor include USD/BRL and USD/INR, particularly given their sensitivity to changes in these market dynamics, notably influenced by the Fed's monetary policy direction.
Market Implications
Traders should monitor the emerging market equities' performance relative to the S&P 500 as additional data solidifies the recovery narrative. Specifically, keeping an eye on fluctuations in the USD/BRL and USD/INR currency pairs will provide insight into broader market sentiment and investor positioning.
From the original
We examine what’s happening across emerging markets, and review the external and domestic drivers that are supporting the asset class. Plus, an assessment of key investment risks to be mindful of. Featured is Alejo Czerwonko, CIO for Emerging Markets Americas, UBS Chief Investmen
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4 itemsTop of the Morning: Emerging Markets - Performance drivers and risks
Top of the Morning: The evolution of Emerging Markets
The desk sees a significant shift in the performance dynamics of emerging markets, which have notably outperformed the S&P 500 over the past 18 months, driven by strong rallies in key regions like North Asia and Latin America. Per the full note from UBS’ Alejo Czerwonko, markets such as Korea and Taiwan have seen gains of 70% and 50% respectively, reflecting broader macroeconomic improvements and robust commodity prices. Additionally, this rising trend spotlights the evolving nature of the asset class influenced by technological advancements in sectors such as AI and semiconductors. As investors increasingly recognize these shifts, it could set the stage for a more considerable reallocation towards emerging market assets.