For much of the past decade, emerging markets were cast as beta plays — volatile but potentially rewarding for those nimble enough to time the trade. That framing is beginning to look outdated. A rebalancing is underway in global capital allocation. It’s not a stampede out of the United States, but the automatic reflex to be overweight US assets is softening. The marginal dollar is moving more deliberately, prompting a reassessment of the real opportunities and what a genuinely diversified, resilient portfolio should look like.
The backdrop is familiar: the US has enjoyed a decade of dominance, fuelled by exceptional tech earnings, expansive fiscal support and the mighty dollar. But each of those pillars is now facing challenges. Artificial intelligence is flattening the playing field for innovation. You no longer need to be in Silicon Valley to build a world-class product; you only need an idea and access to the tools. Fiscal firepower, once a uniquely American asset, is being deployed elsewhere. And the weaponisation of the dollar, most notably during the Russia-Ukraine conflict, has pushed many central banks to accelerate diversification efforts. Even within US markets, the “Magnificent Seven” are increasingly competing with each other, raising questions about long-term dominance and margins.
In addition, Trump’s tariffs are alienating trade partners and impacting their willingness to invest their trade surpluses in US assets. This doesn’t mean everything will unravel overnight. But these cracks in US exceptionalism are opening space for other regions and asset classes to gain attention, notably emerging markets (EM).
Over the past decade, many EMs have transformed. A generation of policy reform has improved macro resilience. For many countries, the days of large twin deficits and reliance on cheap dollar liquidity are behind them. Today, the 19 economies in the JP Morgan EM bond index are running current account surpluses - exporting more than they import, and, in effect, lending dollars to the world. Emerging markets now have 60% less debt, four times the population and are expanding at roughly twice the pace of their developed peers. In contrast, most developed markets are running deficits, have higher debt levels and are growing more slowly.
This isn’t just a cyclical recovery; it’s a structural shift, one that makes EMs a far more credible component of a long-term global investment mix.
The composition of opportunity is changing, too. EM equities are often criticised for being too concentrated - 75% of the index sits in China, India, Korea and Taiwan. But look closer and the landscape is evolving. Fifteen years ago, the largest companies in the benchmark were mostly state-owned enterprises. Today, 80% are privately run, innovation-led businesses with shareholder discipline. Firms like Xiaomi, a Chinese consumer electronics group that started with smartphones and has since expanded into home appliances and electric vehicles, are scaling rapidly. Capital is flowing into AI and automation. In India, the new generation of entrepreneurs is choosing to stay home, not out of patriotism, but because the risk-adjusted returns are more attractive onshore than abroad.
Valuation is another piece of the puzzle. Several Asian currencies look meaningfully undervalued. The Taiwanese dollar, for example, is cheaper now than it was in the 1990s, despite Taiwan being a global semiconductor hub and home to TSMC, the largest company in the EM index. Decades of currency intervention and persistently low interest rates have kept valuations suppressed. Now, with stronger external balances, many of these economies are able to allow gradual appreciation.
Viewed through purchasing power parity (PPP), China’s economy is roughly twice its size in nominal dollar terms; India’s is four times. These valuation gaps suggest mispriced exchange rates as well as under-recognised productive capacity. As the dollar softens, these currencies - and the economies behind them - have room to rerate.
On the credit side, the evolution has been just as compelling. Emerging market corporate debt now offers some of the strongest Sharpe ratios (risk-adjusted returns) in fixed income. The fundamentals have supported the asset class for some time; what has been lacking is narrative dominance. For years, the case for EM credit struggled to compete with the gravitational pull of US exceptionalism. But that is beginning to shift.
The companies issuing debt offshore are typically the best in their markets - dominant in their sectors, strategically important and accustomed to navigating policy uncertainty. They’re not fragile credits; they’re structurally resilient. The EM corporate debt universe spans 84 countries, collectively accounting for more than half of global GDP and an even greater share of GDP growth. These issuers tend to have stronger balance sheets, increasingly local funding sources and deep experience managing volatility, from currency swings to policy shifts. Unlike EM equities, the corporate debt index is broadly diversified: Latin America accounts for more than 40%, Asia for another large share and the rest spans EMEA.
Latin America, in particular, is a region reasserting itself. Brazil offers high real yields and a relatively closed economy. Argentina is attempting a rare feat: rapid disinflation through orthodox reform, and so far, is doing it without losing popular support. Mexico is emerging as a geopolitical pragmatist. With more than 90% of its economic activity tied to North America and Chinese FDI still below 2% of GDP, it is well-positioned to benefit from nearshoring trends. And it’s not just macro. In credit and private markets, LatAm is producing an increasingly rich opportunity set.
The implications for South African investors are especially nuanced. It’s often assumed that a domestic investor is already fully exposed to emerging markets, but this is more a function of domicile than allocation. The local equity index is dominated by resource companies and rand-hedge industrials, not by broad EM themes. And when South Africans invest offshore, they typically do so via developed markets, often without hedging the currency. That can add, rather than reduce, portfolio volatility. Emerging market assets, by contrast, often correlate more closely with the rand and offer more natural diversification. In many cases, particularly in fixed income, they also deliver higher yields with lower volatility than their developed market peers. For South African investors, EM exposure can act as a stabiliser, not a source of additional risk.
This isn’t a call to abandon the US or to chase the next hot trade. It’s an argument for building portfolios that reflect the world as it is becoming: more multipolar, more regionally balanced, and more open to innovation wherever it emerges. EMs are no longer just high-beta trades. They are differentiated return sources. They are home to companies that are scaling innovation, not just labour. And they offer credible macro narratives that stand up in a global context.
This article is based on a panel discussion at our In Perspective Global Forum. The discussion, “Shifting tides: what’s next for emerging markets,” was moderated by Ninety One CSO Nazmeera Moola, and included: Rehana Khan, Deputy Head of SA 4Factor; Varun Laijawalla, Portfolio Manager, 4Factor Global Equities; Grant Webster, Co-Head of Emerging Market Sovereign & FX ; Alan Siow, Co-Head of Emerging Market Corporate Debt.