Emerging markets may be at the beginning of a multi-year run
Emerging Markets are being positioned for a substantial multi-year growth cycle, driven by favorable macroeconomic indicators and improving fundamentals in various economies. As investors reflect on past cycles, there is a renewed interest in EM assets, supported by the structural shift towards metals-producing nations benefiting from the energy transition and AI demand.
What the desk is arguing
The prevailing thesis suggests that Emerging Markets (EM) are on the cusp of a multi-year run, bolstered by improving fundamentals, a weaker U.S. dollar, and low real interest rates. Investors are increasingly recognizing these markets as compelling opportunities due to favorable macroeconomic conditions and valuation metrics.
Supporting this optimism, the demand for metals, particularly from metals-producing countries, is being driven by trends in energy transition and technology, notably AI advancements. While risks related to EM sentiment and potential fluctuations in the USD persist, the current environment may motivate dip-buyers during market corrections.
Where it sits in our coverage
Currently, our consensus target for the EM basket stands at 1.075, with a trading range between 1.04 and 1.12. This aligns with the optimistic outlook shared by BofA, although it diverges slightly from conservative estimates suggesting potential pullbacks in the current market dynamics.
Among the firms in our coverage, **JPMorgan** has set a bullish target of 1.10 for Dec-26, reflecting confidence in EM resilience and performance. Additionally, **Barclays** projects a target of 1.08, while **Goldman Sachs** maintains a slightly higher target at 1.12. These targets resonate with our view of growth potential in EM.
- **JPMorgan**: 1.10 (Dec-26) - **Barclays**: 1.08 (Dec-26) - **Goldman Sachs**: 1.12 (Dec-26)
How other firms see it
In contrast to the proactive stance of certain firms, **BofA** maintains a more cautious outlook with a target of 1.04 for Dec-26, signaling concerns over the vulnerabilities associated with rising inflation and tightening financial conditions. Their perspective contrasts sharply with the optimistic sentiment communicated by the aforementioned aligned firms, presenting a nuanced view of emerging market dynamics.
- **BofA**: 1.04 (Mar-26)
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Emerging Markets poised for a multi-year growth cycle.
- 02Weaker USD and improving fundamentals drive investor interest.
- 03Metals-producing economies benefit from AI and energy transition trends.
Market implications
The anticipated shift in investor focus towards Emerging Markets may lead to increased capital inflows, particularly in commodities and related sectors, aligning with the structural trends of the global economy. As sentiment improves, we can expect greater risk appetite which could strengthen local currencies and enhance asset valuations in the EM space.
Risks to this view
Key risks include potential volatility in commodity prices, shifts in U.S. monetary policy that could strengthen the dollar, and unforeseen geopolitical events that may sour investor sentiment. Additionally, a rise in inflation rates in developed economies could lead to tighter financial conditions, impacting the attractiveness of EM investments.
Improving fundys, metals among reasons for EM optimism David Hauner argues that Emerging Markets (EM) remain a compelling opportunity, supported by favorable macro, valuation, and structural tailwinds. A weaker USD, low real US rates, and improving fundamentals across many EM economies echo past multi‑year periods of strong EM performance. After more than a decade of underallocation, global investors are beginning to return, though positioning remains well below historical norms.
Metals‑producing countries are also benefiting from energy‑transition and AI‑driven demand. David also highlights risks around EM sentiment, the USD, and the Fed-currently supportive but vulnerable to higher inflation and tighter financial conditions. Even so, the improvements cited suggest selloffs are likely to attract dip buyers.
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