Emerged: Structural Re-Rating of Emerging Markets

This report argues that Emerging Markets have achieved a structural re-rating due to improved fundamentals, leading to equity outperformance in 2025. It suggests global investors should increase EM allocations to capture secular themes like AI and the green transition.

Key Takeaways

• 1.Emerging Markets have reduced macroeconomic vulnerabilities through improved policy frameworks and deeper financial markets, leading to a structural re-rating across asset classes.
• 2.EM equities outperformed Developed Markets in 2025, driven by broad-based factors including AI investment, the green transition, and rising spending power.
• 3.EM assets offer strong cyclical advantages, including larger fiscal headroom (debt ~73% of GDP vs ~110% for DMs) and more independent monetary policy cycles.

Table of Contents

• Introduction
• Question 1: How did EMs perform across equities, fixed income, and foreign exchange in 2025, relative to DMs?
• Question 2: Should EM outperformance versus DMs really come as a surprise?
• Question 3: How should investors be thinking about the role of EM assets in a global multi–asset portfolio?
• Question 4: Beyond the structural tailwinds just discussed, what cyclical advantages have driven – and may continue to support – EMs’ strong financial market performance?
• Question 5: What are the investment implications for global investors?
• EMs may lend themselves to more selective, granular exposures.

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