Top of the Morning: The evolution of Emerging Markets
At a Glance
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.
Key Takeaways
- 01Emerging markets have substantially outperformed the S&P 500 over the last 18 months, driven by gains in North Asia and Latin America.
- 02Korea and Taiwan posted gains of 70% and 50%, respectively, due to favorable macroeconomic conditions and higher commodity prices.
- 03Technological advancements are reshaping the emerging markets asset class, drawing increased investor attention.
- 04The current target range for emerging market currencies is positioned between 1.04 and 1.12, with consensus leaning towards the upper end.
Full Analysis
What the desk is arguing
The desk believes that the recent outperformance of emerging markets presents a compelling investment narrative. The data presented by UBS highlights extraordinary gains, particularly in North Asia, where Korea and Taiwan have surged significantly, advising traders to consider the underlying macroeconomic improvements driving these trends.
Emerging markets overall delivered returns that have outpaced the S&P 500, reflecting a potential shift in perception as bolstered by improving political climates, strong commodity prices, and enticing valuations in regions such as Latin America. Figures such as Brazil and Mexico seeing gains exceeding 70% in dollar terms over 18 months exemplify this trend and suggest sustained momentum.
Where it sits in our coverage
Our consensus target for emerging market currencies aligns at 1.075, with a range between 1.04 and 1.12. Notable targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
Current positioning indicates that our view is at the higher end of the spectrum, suggesting an optimistic outlook compared to bofa’s more cautious approach.
How other firms see it
Firms like jpmorgan support the desk’s bullish outlook on emerging markets, while bofa offers a contrarian stance, arguing for more conservative positioning based on global economic uncertainties. This divergence highlights potential volatility in this asset class.
Watch the performance of dollar-denominated emerging market assets and consider the impact of recent advancements in technology sectors like AI and semiconductors as indicators of the potential for further outperformance in the coming quarters.
Market Implications
Traders should monitor the performance of key currencies within emerging markets, particularly as they react to broader tech sector developments and commodity price shifts. Specific attention should be given around the 1.075 level as a potential pivot point for further movements.
From the original
A look at the factor behind the outperformance of emerging market assets over the past year, along with how the rise of AI and semiconductors has changed the nature of the emerging markets asset class. Featured is Alejo Czerwonko, CIO for Emerging Markets Americas, UBS Chief Inve
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4 itemsTop of the Morning: Emerging Markets - Performance drivers and risks
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.