Emerging markets are poised to end 2025 on a high, with a series of positive developments pushing stock indexes to record highs, with many expecting even higher highs in the new year. The MSCI Emerging Markets Index (comprised of large- and mid-cap stocks listed in emerging market countries) is up about 30% since the beginning of the year, outperforming the average of all three major Wall Street stocks. By comparison, the MSCI World Index, which includes only large- and mid-cap stocks from developed markets, including the U.S., rose just over 20% in 2025. Certain countries in this cohort had particularly strong years. For example, Greece’s benchmark index, the Athens Composite Index, has soared nearly 44% over the year and is scheduled to be upgraded to developed market status in September 2026. But the rise of emerging markets this year is not simply due to the outperformance of one or a few countries. Benchmark stock indexes in Chile and the Czech Republic are both up about 50.8% since the beginning of the year, while Romania’s BET index is up more than 42%. ‘A year of change’ At a roundtable event in London at the end of November, fund managers at NinetyOne, an investment management firm with more than 152 billion pounds ($203 billion) of assets under management, sounded bullish, suggesting further upside is likely in various parts of emerging markets in 2026. said Raijawala, portfolio manager for emerging market equities at the firm. “The first change is that for the past 15 years, there was only one trade in the market, and that was the developed markets, and that was precisely the United States, but that changed this year.” Raijawala also noted that the dollar has weakened this year after “15 years of one-way trading.” Since the start of the year, the dollar index, which measures the dollar’s value against a basket of major rivals, has fallen about 9%, a move first sparked by April’s sale of U.S. assets in what became known as the Sell America deal. A stronger dollar could put pressure on emerging economies that rely on foreign capital by raising the local currency cost of dollar-denominated debt and potentially reducing foreign investment inflows. Additionally, Raijawala said there will be many changes at the country level in 2025, citing China and South Korea as examples. The former, he said, has seen the emergence of DeepSeek, a challenger to the US AI story, and private sector re-adoption this year. Meanwhile, a new government has been established in South Korea to implement long-awaited corporate governance reforms. “Of the 24 markets you can invest in on the equity side, South Korea is the one with consistently weak governance, so if you’re addressing the key issues in that market, this is clearly a very big positive turnaround,” he said. The most notable tailwind, says Raijawala, is the change in net issuance, which is how stocks enter and exit the public market. “Why is this asset class underperforming developed markets? There’s one reason, and one reason only…net issuance, so-called dilution.” “Emerging markets have had a very strong net issuance impact over the last 15 years,” he said, pointing specifically to the wave of IPOs in China. “This is the underlying financial reason why emerging market equities have underperformed the US and developed markets. So if you look at the numbers, the net issuance over the last three years, the net issuance of China, which is a serial offender, has shrunk rapidly.” He added that in 2024 there will also be a “quantity” of share buybacks in China, and a broader change in corporate capital allocation behavior, including increased dividends. “What I’m saying is that the headwind is rapidly becoming less of a headwind and at some point will become a tailwind,” he said. “And I don’t think the market understands that concept at all. That’s where the real delta is…I don’t think setting up for emerging markets has looked this compelling in the last 15 years.”Ninety One Varun Rajywala Portfolio Manager Emerging markets haven’t looked this attractive in the last 15 years Speaking to reporters at JPMorgan’s London headquarters, Mislav Matejka, the investment bank’s head of global and European equities strategy, said the company’s view was that emerging markets were headed for a second year of outperformance in 2026, breaking “years and years” of weak returns. “For years, our calls were always the same: long DMs and short EMs,” he said. “But this year we’ve switched completely to emerging markets and China. From an equity perspective, we’re overweight in our regional portfolio. Whether it’s China, South Korea or India, we’re buyers, but[we’re]buying emerging markets as a whole for a variety of reasons.” Driving factors behind this position include attractive valuations, currency trends and economic growth trajectory, Matejka added. He told reporters that the improved performance of emerging market currencies and bonds due to high interest rates had fueled optimism this year, adding that the end of the easing cycle was nearing. “However, when you look at EM valuations relative to emerging markets, even in absolute terms, there is still a 30, 40, 50% discount given the positioning of global investors.” JPMorgan says many emerging market countries are poised to become vicarious beneficiaries of the global AI boom, thanks to the consequent increase in demand for goods such as metals and energy. “Commodity workers in emerging markets are benefiting from these huge capital investments,” Luis Oganes, the bank’s head of global macro research, added at the same event. Alvine Capital strategic advisor Stephen Isaacs appeared on CNBC’s “Squawk Box Europe” on Thursday and called emerging markets “interesting” heading into 2026. “Latin America — the dominoes are starting to fall there,” he said, pointing to political shifts in favor of conservative policies in Argentina and Chile and U.S. President Donald Trump’s focus on the region. “The focus on the Western Hemisphere, the power of ideas, American money, I think there’s a revolution going on in Latin America and a bit of a catch-up. It’s a very interesting area,” he said. “The next one to catch up is Brazil. Brazil is a little behind because there will be a presidential election next year. They will probably oust Lula and bring in a conservative.”
