The emerging market (EM) universe is very diverse in terms of what drives individual economies. What does China have in common with India (other than being populous and in Asia) or either of them with Brazil? Yet they are treated as a block, and recent trends are stretching these contradictions further than ever.

A top-down investing strategy often involves assigning things to groups, then buying the most compelling groups or choosing the most attractive within a group. These groups can seem arbitrary – the difference between members can be as big as the similarities. Yet in the investment business, classifications that seem easy to understand can stick around well past the point where they make sense.

Standard rules of thumb for emerging markets would tell you that the last few months have been difficult. Many emerging markets are energy importers, so will suffer from higher oil prices. Markets also tend to be affected by inflows and outflows from foreign investors. If global investors get more nervous, they would be expected to cut emerging-market exposure first and take their money home. Yet the MSCI Emerging Markets index is up by 20% in sterling so far this year. How?

AI stocks are over-represented in emerging markets indices

The explanation hinges on two points. The first is that two of the biggest markets in the index are emerging markets only in one very specific sense. South Korea and Taiwan retain certain restrictions, mostly around their currencies, that MSCI deems incompatible with being in the developed markets group. Yet in many respects, they are both wealthier and more advanced than many developed economies.

The second is that a few huge companies – Taiwan Semiconductor (TSMC), Samsung Electronics, SK Hynix – are huge beneficiaries of the AI boom and are driving their markets even more than the Magnificent Seven drives the US market. Those three stocks account for almost 30% of the MSCI Emerging Markets index. Taiwan and Korea together make up 50% of the index. In turn, TSMC is 55% of the MSCI Taiwan, while Samsung Electronics and SK Hynix account for 60% of the MSCI Korea.

These are eyebrow-raising numbers. They have worked out very well for any broad emerging-market investor. Still, we must remember that if the AI boom ends and the US market slumps, the emerging market index will do the same – it's been a play on the same theme.

If you want diversification, you will only find it in funds whose mandate does not bring in these stocks – BlackRock Frontiers (LSE: BRFI) or Barings Emerging EMEA Opportunities (LSE: BEMO), for example. Of course, these funds have lagged in recent months, held back by the lack of tech exposure or battered by the Middle East crisis. I would not say it is yet time to rotate out of broader emerging market funds. But it is something to keep in mind if the crisis passes and the AI boom falters.

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In Asia, it is the best of times, it is the worst of times. The crisis in the Strait of Hormuz is hammering energy importers hard, even as parts of the region emerge as the principal winners of the mania surrounding AI. That pushed the MSCI Emerging Markets Asia index up 15% in the first five months of the year.

Yet on currency markets things are grim. Talk is turning to the 1997 Asian financial crisis, when large trade deficits caused investor confidence to “evaporate within months”, triggering “deep recessions” and political tumult, say Swati Pandey and Claire Jiao on Bloomberg. Indonesia, the Philippines and India look especially vulnerable to capital outflows. Respectively, their currencies have shed 8.5%, 9.5% and 10.5% against the US dollar over the past 12 months.

The once-promising Philippines has been hit especially hard, says Daniel Moss, also on Bloomberg. The country was a Southeast Asian growth star in the 2010s. Now inflation is running at 7% and heading for double digits, a huge surge from 2% in January. The local PSEi share index is down 5.6% over the past three months. The Philippines' difficulties could be a taste of things to come elsewhere.

But nowhere are Asia's contradictions as stark as in South Korea. The won is trading at its lowest level against the dollar since the 2008 financial crisis, say William Sandlund and Daniel Tudor in the Financial Times. Yet puzzlingly, Korea is enjoying a record trade surplus because of insatiable demand for its computer chips. An export boom should be strengthening the won, not weakening it.

Paradoxically, one explanation may be the blistering pace of an Asian stock market boom. The Kospi index has doubled since the start of the year, driven by large runs at chip specialists Samsung and SK Hynix. That has forced fund managers to sell to avoid overexposure, with foreign investors offloading a record net $79 billion of local equities this year.

Taiwan's Taiex index has gained 58% this year, seeing it surpass India to become the world's fifth-largest stock market. Almost all of the world's high-end chips are made by Taiwan's TSMC. The island, which is only slightly larger than Belgium, now accounts for almost a quarter of the entire MSCI Emerging Markets index.

Investors in Asia should ‘buy the shovels’

When there's a gold rush, it's good if 30% of your economy is “based on shovel manufacturing”, says Joseph on Substack. Taiwanese GDP rose at an annualised pace of 23.6% in the final quarter of 2025. GDP has risen by almost a quarter since ChatGPT was launched in late 2022. Not everyone is benefiting from the boom – exporters are doing well while everybody else struggles. But there is no arguing with this modern growth “miracle”.

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Charles Jillings, co-fund manager of Utilico Emerging Markets Trust, discusses the outlook for emerging markets and the long-term investment opportunities in infrastructure and utilities.

In this episode of MoneyWeek Talks, Andrew Van Sickle speaks to Charles about how emerging economies are dealing with Donald Trump's tariffs, the after-effects of the war in Iran, and why countries like Brazil and the Philippines are overlooked markets.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

It's unknown who first nicknamed Mark Mobius, the legendary US stock-picker who has died aged 89, the “Indiana Jones of emerging-market investment”. But he certainly enjoyed playing up to the moniker. “The places I like to be are the places where nobody else wants to be” was a typical pitch, says The Telegraph. “I want to be there when there's blood on the streets,” he said. “Problems, crashes, people jumping out of windows… Fantastic.”

Mark Mobius, who ran the Templeton Emerging Markets Fund for nearly three decades until 2018 – growing it from $100 million to more than $40 billion under his leadership – certainly made many winning bets during crises, says Forbes India. He cleaned up buying quality stocks at rock-bottom prices during the 1997 Asian financial crisis and the Russian panic a year later, continuing the theme through the dotcom bust, the 2008 global financial meltdown and all subsequent dips. “If you see light at the end of the tunnel, it's too late to buy” was a favourite maxim.

At his peak, Mark Mobius was famous for criss-crossing the world in his Gulfstream jet (he travelled for 250-300 days a year), swooping down on bashed-up bargains. But his gung-ho rhetoric concealed more nuanced thinking, and his many books “offered an unusually human view of global finance”, says CNBC. “If you want to understand a market, start with its people,” Mobius wrote. The line distilled his belief that on-the-ground observation mattered more than abstract theory.

Mark Mobius observed in his biography that he had “toured rubber plantations in Thailand and road-tested bikes over the pothole-ridden roads of rural China”, says the Financial Times. He elaborated how he'd “choked on roast camel's meat, sheep's eyeball, guinea pig and dined (surprisingly well) on scorpions on toast”. He was a great storyteller whose calm manner and encyclopaedic knowledge reassured Western investors uneasy about political risk, currency volatility and opaque governance. “People say emerging markets are dangerous places to invest,” he once remarked. “But Bernie Madoff operated in the US for years.”

Mobius is quite rightly acclaimed for opening up a massive new investment class. But the nattily dressed “godfather of emerging markets” was held in equal affection in many of the territories he targeted, says Business Today (India). “He came to India during the economic liberalisation phase of 1991-1992 and fell in love with an expanding economy and its booming stockmarkets,” as well as its people and culture – and remained “a perma Indian bull” all his life. It was a similar story in China and Hong Kong, says the South China Morning Post.

Mark Mobius was a master at finding value

Mark Mobius' family background had nothing to do with finance – but it did open him up to different cultures. His German-born father, Paul, was a ship's cook and baker; his mother Maria was from Puerto Rico. Brought up on Long Island, he studied communications at Boston University, completed a doctorate in economics at MIT in 1964, and worked as a teacher before turning to investment, says The Telegraph. He moved to Hong Kong in 1967 and established his own research and investment business, later working for the British stockbroking firm of Vickers da Costa before the veteran investor John Templeton – himself a past master of spotting hidden value and a pioneer of global investment – invited him to create an emerging-markets fund. The rest is history.

Mobius's lean features and shaved head – a look he adopted in the 1960s after a fire in his apartment damaged his hair – made him a ringer for the Russian-American actor Yul Brynner. But he had his own unique magnetism, says Business Today. There was nothing of the US economic imperialist about him. He was a bridge-builder – and will be sorely missed.

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Another week brings another wild ride in the Middle East. Markets are still taking the swings far more calmly than almost anybody would have expected a few weeks ago. There's more volatility below the headlines when you look at which sectors are doing well or poorly, but the fact that global stocks are broadly unchanged since America and Israel first attacked Iran seems increasingly hard to understand.

One possibility is that investors remain optimistic that the crisis will pass and everything will go back to the way it was before. That is plausible, but becomes less likely the longer the disruption goes on. The second is that many people suspect that this is an inflexion point, geopolitically and economically, but feel that the long-term implications are still unclear. If so, it may be more sensible to do little and wait and see, rather than overreact wildly.

Brazil could prove to be a winner

So who, potentially, are the winners? The crisis will increase the focus on energy security, which should support commodity prices (short-term) and resource investment (medium-term). At a top-down level, maybe this will be good for Brazil. Yes, this is an economy with a long history of unfulfilled promises, but it is one that has done very well in previous resource booms.

Brazil's market is up strongly over the past year, but has not moved much in this crisis. On a forward price/earnings ratio of ten, it is not as cheap as it sounds (a cyclical economy should trade on low valuations), but it is not expensive. Brazil's economy is not immune to higher energy costs – diesel and fertiliser prices are rising – but very high use of biofuels should help insulate it to some extent. I am considering buying the Xtrackers MSCI Brazil ETF (LSE: XMBR).

What about the losers?

The crisis may accelerate the decline of the US dollar as the global reserve currency. The assumption is that this will be a gradual process given how embedded the dollar is in the global financial system – but we should remember that ruin often happens “gradually, then suddenly” in the words of one of Ernest Hemingway's characters.

Fewer foreign buyers for US Treasuries does not mean that America must go bankrupt – I do not think there is any likely way that America will default, other than stupid political theatrics around the nonsensical debt ceiling. However, the choices that it might one day have to make to avoid bankruptcy probably point either to much slower growth or higher inflation.

More broadly, it is hard to guess at this point what the implications are if the US dollar loses its unique status. A global financial system that no longer uses the dollar – and by extension many American companies – as the lynchpin of so many transactions could look very different. To take just one speculation, I hold Mastercard and Visa in my portfolio – I wonder how vulnerable they could be to potential efforts to decouple the world from America.

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Asian markets (excluding Japan) are still widely classed as “emerging markets”, but the description is misleading. China, South Korea and Taiwan now account for more than 75% of the MSCI Asia ex Japan index and more than 60% of the MSCI Emerging Markets. South Korea and Taiwan are high-tech economies by any standards. China is a more mixed picture, but highly advanced in many areas.

This means that Asia is a hard region to ignore. Four of the world's 30 largest firms are based there: Taiwan Semiconductor Manufacturing (TSMC); Korea's Samsung Electronics and SK Hynix; and China's Tencent. Crucially, these “fantastic four” are not just big companies, but also very well-placed. “The AI build-out is positive for Asia, with 38% of data-centre capital expenditure going to Asian businesses,” says Emily Whiting of JP Morgan.

In particular, TSMC is “one of the best businesses in the entire world”. While Nvidia and others design cutting-edge chips, it is TSMC that makes them. The market is growing strongly and chips are becoming almost a consumable, replaced every few years. That makes TSMC's forward price/earnings ratio in the high teens look almost like a bargain.

Meanwhile Samsung and SK Hynix dominate the market for memory chips, with Samsung trading on a single-digit forward multiple. SK Hynix's specialism in ultrafast, high-bandwidth memory commands a higher rating, but still only in the mid-teens.

Tencent is very different: it is mostly a domestic business, focused on entertainment, social media, the internet and gaming in China – ie, a consumption play. “Asia has 60% of the world's population and 48% of its GDP yet only accounts for 9% of the global stockmarket valuation,” says Whiting. “Demographic trends are strong, with over one billion people moving into the consumer class, to the benefit of the banking, financial and consumer sectors.”

Wider opportunities in Asian markets

This ensures that while nearly all the Asian specialist trusts have an exposure of more than 30% to the “fantastic four”, managers can find plenty to buy beyond the heavyweights. Look for value in Southeast Asia rather than China or Korea, suggests Abbas Barkhorder of Schroders. Return on equity in China has been “heading in the wrong direction since 2012 due to over-investment”, he argues.

India “remains expensive” among Asian markets, but offers some opportunities. The banking sector is attractive given “low banking penetration and private sector banks taking market share from state-owned ones”. Insurance also has scope for strong growth due to “low levels of insurance cover and a significant need for cover, given high out-of-pocket expenditure on healthcare”.

Recent performance of most of the Asia regional trusts has been very strong, led by Baillie Gifford's growth-focused Pacific Horizon (LSE: PHI) and Schroder Oriental Income (LSE: SOI). The market setback has knocked the region back by about 10%. This re-establishes absolute as well as relative value and provides an opportunity to invest for the long term.

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Vietnam is one of the world's fastest-growing markets, and this trend is expected to continue over the next decade. The economy is benefiting from growth in all three key components of GDP: rising exports as global firms diversify their supply chains from China; a major investment drive backed by both the government and the private sector; and the growth of consumer spending as the middle class expands.

At present, Vietnam is still classed as a frontier market rather than an emerging market. This distinction is about market infrastructure and access rules rather than the opportunities available – it is actually a larger and broader market than some countries that are already classed as emerging markets – but it limits how much exposure many foreign investors will have. However, FTSE Russell plans to reclassify Vietnam into the FTSE Emerging Market index in September 2026. This should mean that a range of new investors – both tracker funds and active funds benchmarked against it – will begin to put money into the market.

There are three UK-listed investment trusts that specialise in Vietnam. The largest is the £1.2 billion Vietnam Enterprise Investments (LSE: VEIL), followed by the £700 million VinaCapital Vietnam Opportunity Fund (LSE: VOF), and the £75 million Vietnam Holding (LSE: VNH). All of these trusts share a number of top holdings, which reflects the reality that emerging markets often have a limited number of large, higher-quality companies.

Vietnam's banks act as “amplified growth proxies”

All three have a lot in financials – for example, VEIL has around half. “Vietnam's economy is overwhelmingly bank-funded,” says Thao Ngo, who manages VEIL with Tuan Le. Bank credit accounts for around 145% of GDP due to underdeveloped bond and equity markets and credit growth runs at roughly two to 2.5 times the nominal GDP growth rate. “This leverage to GDP makes banks not just a proxy for growth, but an amplified proxy.” The sector enjoys a return on equity of 17%-18% compared with a regional average of 9%-11%.

VNH's portfolio is more concentrated than that of VEIL. It tilts more to mid-cap stocks than its peers, although at the end of 2025, it had around 75% in larger stocks “reflecting adaptation to market realities while maintaining conviction in Vietnam's structural story”, say the managers in the latest interim report. Their strategy focuses on high-growth companies geared to domestic consumption, industrialisation and urbanisation. The largest holding (at 10%) is Mobile World Investment Corp, which is also a major holding for VEIL and VOF. This grocery-to-electronics retailer and mobile-phone group plans to expand in Southeast Asia as well as growing further in Vietnam.

VOF looks for an extra edge in private markets. It has seven private holdings alongside 21 public investments (many of the latter were made before the firms listed). This builds exposure to sectors that are under-represented on public markets, such as consumer themes, technology and renewable energy. These are “developing quickly, but are still at a nascent stage to achieve maturity for listing”, says the fund, which is managed by Khanh Vu. For example, healthcare is an important area that is under-represented in public markets: the entire sector – comprised of one general hospital, a handful of generic drug manufacturers, and pharmacies – accounts for around 1% of the index. VOF has so far invested in three hospital platforms and successfully exited two.

At present, the three are trading on discounts to net asset value (NAV) of 15%, 7% and 23% respectively, which is broadly in line with their five-year averages. The Vietnamese market has been affected by the Middle East crisis, but the impact will hopefully be “cyclical and temporary rather than structural and permanent”, as VNH puts it. The long-term story remains the shift from low-cost exports to a higher-value economy with a growing middle class.

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Vietnam is one of the most exciting emerging markets, according to Dominic Scriven, founder and chairman of Dragon Capital.

In this podcast, he spoke to MoneyWeek's Cris Sholto Heaton about the challenges and opportunities that lie ahead for Vietnam, the current climate for investors and how his Vietnamese language lessons led to him founding the largest asset manager in the country.

Watch the full episode on our YouTube channel or tune in to MoneyWeek Talks on your preferred podcast platform.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

South Korean stocks fell 12% on 4 March, and the country’s main stock exchange was forced to temporarily stop trading, following heightened volatility in response to the conflict in the Middle East.

The Korea Exchange (KRX) activated a twenty minute circuit breaker on both the Korea Composite Stock Price Index (KOSPI) and its tech-heavy Korea Securities Dealers Automated Quotations (KOSDAQ) market, after the KOSPI fell 8.1% within hours of the market opening.

Shares on the KOSPI “dived into freefall mode”, said Susannah Streeter, chief investment strategist at Wealth Club. “The index ended 12% lower as investors fretted about the impact of high energy prices, given how reliant the country is on imports.”

Korean stocks were particularly heavily hit by a sense of panic that gripped Asian markets, following increased constraints through the Strait of Hormuz – a vital shipping lane that passes between the Gulf of Oman and the Persian Gulf. Around 20% of the world’s oil passes through the strait, but Iranian forces have effectively closed the lane off.

The disruption caused stocks across Asia to sell off. Japan’s Nikkei 225 fell 3.6% and Taiwan’s Taiex fell 4.4%

However, Korea saw the biggest hit, in part because of its reliance on oil imports, its export-driven economy (that is perceived to be vulnerable to trade disruption), and also because this seems to be where global investors have assets to sell.

The KOSPI gained over 50% in 2026 through to 27 February. Investors locked in these profits as uncertainty prompted a flood away from equities.

What is a stock market circuit breaker?

The twenty minute pause that KRX implemented isn’t as unusual as you might think.

Most stock exchanges have a mechanism in place that halts trading temporarily in the event of large, sudden price movements in an index (or in certain circumstances, individual stocks), in order to manage volatility and protect against disorderly selloffs.

They were originally designed following the ‘Black Monday’ stock market crash in 1987 that saw a year’s worth of gains wiped out within hours, thanks in part to automated trading programs that were, at the time, relatively new.

Circuit breakers are triggered on the S&P 500 if it falls 7%, 13% and 20% in a single session.

The theory is that circuit breakers halt panic selling and thereby slow the decline of the index.

Can Korean stocks recover?

This was the largest one-day fall in the KOSPI’s history, but it is worth noting that, despite falling more than 20% since 27 February, the index closed 4 March up 21% through 2026, and over 100% up over the last 12 months – underscoring the fact that these investments offered a convenient source of liquidity at a moment when investors flew into a panic.

Where Korean stocks go from here depends much on how and when the situation in the Strait of Hormuz resolves.

“The downward pressure on stocks is likely to continue until this crucial trade route is made safe,” said Emma Wall, chief investment strategist at Hargreaves Lansdown. “Once secured however, we expect markets to return to optimism – with the volatility we have come to anticipate as the norm under a Trump presidency.”

Emerging market stocks celebrated one of their strongest years in recent history in 2025.

The MSCI Emerging Markets Index (an index of large- and mid-cap stocks from emerging markets) returned 33.6% during the year, its best annual return since 2017, compared to 21.1% for the MSCI World Index (which comprises global stocks from developed markets).

The emerging market rally may not be over either, as experts believe many of the tailwinds that drove last year’s success are still in play.

Investors’ desire to diversify away from the US, a weak dollar and a potentially more dovish Federal Reserve are some of the key tailwinds working in emerging markets’ favour.

Mali Chivakul, emerging markets economist at J. Safra Sarasin Sustainable Asset Management, predicts that “2026 will be a year of net inflows into emerging market asset classes” and points out that, besides outflows from China, the year got off to a strong start.

The MSCI Emerging Markets Index gained 14.9% in the first two months of 2026, though they then fell slightly following the onset of hostilities in the Middle East.

Despite outperforming global counterparts over the last year, emerging market stocks remain attractively valued, and could benefit from a number of separate tailwinds this year.

“A lot of people are underweight emerging markets, if they are there at all,” Marcus Weyerer, director of ETF investment strategy, EMEA at Franklin Templeton, told MoneyWeek.

So if you haven’t got any exposure to emerging markets, and you’re considering where to invest, what makes them worth considering?

What is an emerging market?

The phrase ‘emerging market’ can be vague, especially for beginner investors. While there are various economic definitions, when discussing emerging markets in an investing context, we’re normally referring to the MSCI’s classification system.

This categorises economies based on the extent of their economic development, as well as the size and accessibility of their capital market. These second two factors are important because it means that several highly advanced economies (think China or South Korea) are designated as emerging markets thanks to the way their stock markets are regulated.

In Korea’s case this is mostly thanks to how its capital markets are regulated: for example, the fact that full currency conversion from the South Korean Won and short-selling are restricted.

“For a retail investor, [these restrictions have] almost zero implications,” says Weyerer.

But the upshot is that Korean equities are classified as emerging market stocks, which plays a part in their relative undervaluation.

Dollar weakness could support emerging markets

The US dollar index – which measures the strength of the currency against a basket of global competitors – fell around 0.4% during the first two months of 2026, and is down over 8% over the preceding 12 months.

“A weaker dollar is historically beneficial for emerging markets,” explains Weyerer. This is chiefly because emerging markets have approximately $4 trillion worth of dollar-denominated debt, which becomes cheaper to service in their domestic currencies when the dollar weakens.

This is compounded by the fact that the Federal Reserve (Fed) is cutting interest rates, which further reduces the cost of borrowing dollar assets.

This dynamic could be reversed, though, if the Middle East conflict remains protracted. That might encourage the Fed to slow its rate-cutting cadence, which would add strength to the dollar.

But for now the macroeconomic backdrop remains favourable to emerging markets going forward. “Although US dollar weakness remains a tailwind for the asset class, it is not the only driver for emerging market outperformance,” said Chris Tennant, portfolio manager of Fidelity Emerging Markets (LON:FEML). “Many emerging market economies benefit from increasingly sophisticated capital markets and therefore carry less dollar-denominated debt than in the past, meaning EM outperformance is not reliant on continued USD weakness.”

US diversification and low emerging market valuations

On a more micro level, emerging market stocks are valued more attractively than many global counterparts.

This is particularly true of US stocks, which have made a slow start to the year compared to global stocks.

“People are looking to diversify out from expensive US tech,” said Weyerer.

MSCI World is often viewed as the authoritative global stock market index, but it has no emerging market exposure at all, while US stocks comprise over 70% of the index.

“In the last year, people have realised that there's maybe more out there than just the US,” said Weyerer.

Emerging market stocks still offer AI exposure

The S&P 500 is heavily weighted towards AI stocks, with the Magnificent Seven megacaps accounting for over 30% of the index between them.

But investing in certain emerging markets still offers AI exposure, and generally at more favourable valuations.

Korea’s market in particular is heavily AI-dominated: Samsung Electronics (Seoul:005930) and SK Hynix (Seoul:000660) make up approximately 53% of the MCI Korea Index between them (as of 27 February).

Despite quadrupling in value in the 12 months to 27 February, Samsung’s stock trades at less than ten times its projected earnings (compared to around 23 for Nvidia). SK Hynix more than quintupled over the same period, but trades at less than six times its projected earnings.

Then there is Taiwan Semiconductor Manufacturing (NYSE:TSM) (TSMC), the largest stock in the MSCI Emerging Markets Index and key supplier to Nvidia, Advanced Micro Devices (AMD) and almost every AI company in the US. It’s fair to say, though, that TSMC is no longer a hidden gem; its forward P/E multiple is now higher than Nvidia’s at over 26 – but it underscores how reliant the broader AI ecosystem is on emerging market regions.

By investing in emerging markets, “you’re diversifying your AI trade out of the hyperscalers, to the companies that actually produce the chips those hyperscalers need for the data centres,” said Weyerer.

Sector diversification through emerging market stocks

The advantage of investing in emerging markets is that they provide sectoral diversification too. AI is represented, but it isn’t the dominant story in the way that it is in developed markets (which, effectively, means the US).

There is a diverse range of economies within emerging markets. While Korea and Taiwan are heavily technology-driven, India – the world’s largest country by population and one of the fastest-growing economies – has a much more domestically-focused stock market.

“If you look at the recent trade deals that India has clinched, maybe in five years, the economy will look quite different,” said Weyerer. “The big opportunity in India is consumption. You’ve got great demographics there.”

Many emerging markets also offer exposure to commodities like gold, silver and copper.

“Another key driver for the emerging market asset class is the increasingly ‘goldilocks’ type backdrop for commodity prices, with what could be continued strength in key mined commodities,” said Tennant.

“Resource-rich EMs have benefited from commodity price rises,” said Chivakul. “High gold, silver and copper prices have supported markets such as Chile, Peru and South Africa.”

How to invest in emerging markets

You could buy stocks like TSMC, Samsung or SK Hynix directly into your portfolio, if your broker allows it. This article on three emerging market stocks contains further inspiration for individual stock picks – but you may want to use a fund or investment trust to gain broader access.

A low-cost index fund tracking an emerging markets index, such as Xtrackers MSCI Emerging Markets UCITS ETF (LON:XMMS) or the Franklin Templeton FTSE Emerging Markets UCITS ETF (LON:EMER), is a simple means of gaining exposure.

Actively-managed emerging market strategies include investment trusts like Fidelity Emerging Markets, Templeton Emerging Markets (LON:TEM) or JPMorgan Emerging Markets Growth and Income (LON:JMGI), or active funds like Guinness Emerging Markets Equity Income Fund or the Invesco Emerging Markets ex-China Fund.

Emerging markets came into focus over the course of 2025 amid a volatile global backdrop. Heightened geopolitical tensions and uncertainty over US trade policy caused periodic bouts of weakness, as investors assessed the potential impact of tariffs on global trade and growth.

However, these concerns also contributed to a weakening of the US dollar, a dynamic that has tended to be supportive for emerging markets by easing financial pressures and allowing for more flexible policy. This trend was reinforced as some investors began to reassess the risks of over-concentration in US assets and diversified more actively into other markets.

In this environment, opportunities across emerging markets have remained uneven and recovery has played out differently by country and sector, with stronger momentum in parts of Europe, in technology-linked markets in Asia, and a more cautious – but improving – outlook in China. Against this backdrop, active stock selection is critical. The following three stocks reflect our approach to investment.

Focus on technology to profit from emerging markets

National Bank of Greece (Athens: NBG) reflects the ongoing repair of parts of Europe’s financial system. Greece has emerged as one of the clearer recovery stories, supported by improving macroeconomic fundamentals, resilient private consumption and a sustained reduction in public debt, culminating in a return to investment-grade status.

NBG has completed a long period of restructuring and now benefits from a large deposit base and strong capital ratios. The resumption of dividend payments after a 16-year hiatus reflects the strengthening of its balance sheet and operating position, as well as a more stable domestic backdrop.

Within the technology sector, Taiwan Semiconductor Manufacturing Company (Taipei: 2330) provides direct exposure to sustained investment in AI and cloud computing. Increased capital spending by global technology firms has driven demand for advanced semiconductors, where manufacturing capability and scale are critical. As the world’s leading producer of advanced chips, TSMC is a leading beneficiary of this demand. Its technology underpins applications ranging from AI to cloud infrastructure, and its position within global supply chains reinforces Taiwan’s importance as a semiconductor hub. This combination leaves TSMC well placed to benefit as investment in advanced computing capacity continues.

Tencent (Hong Kong: 700) operates one of China’s largest internet platforms, spanning online gaming, digital advertising and cloud services. Earnings growth has been driven by unexpectedly high revenues from gaming, AI-enabled improvements in advertising, and a recovery in the cloud business. The company has also sharpened its focus on capital discipline, reflected in an increased emphasis on dividends and returns for shareholders.

This progress comes despite a more mixed market backdrop in China. Targeted policy measures have recently helped stabilise sentiment, while innovation remains a defining feature of the technology sector. Developments such as the launch of the DeepSeek AI platform underline China’s continued role in AI, supporting longer-term demand for cloud, software and digital services – areas where Tencent remains well positioned.

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It is nearly eight years since healthcare and biotech investor Sam Isaly abruptly stepped down from OrbiMed, the managers of the Worldwide Healthcare Trust (LSE: WWH). In the 22 years in which he was lead manager, WWH achieved an annualised return of 16.8%, the highest in the investment trust sector.

Since WWH continued to perform well for the next four years, it didn’t really matter. However, there followed four years of dismal performance in which the share price fell 30% and underperformed the MSCI World Health Care index before a recovery in the last six months.

Meanwhile, Isaly began building a new funds business. Exome Asset Management now runs a little over $200million, with nearly half in its Worldwide Healthcare Partners (WHP) strategy, but has already built a formidable performance record. In the year to the end of November, the fund returned 70%, after achieving 88% in the previous six (despite two down years). He sees plenty of opportunities in the sector.

Focus on China’s emerging biotech industry

“Pharma is facing the largest patent cliff in history, with $300billion of sales at risk – 20% of the total market – between 2025 and 2030,” says Isaly. “Pipeline replenishment is necessary.” Larger companies will either need to innovate or acquire new products through acquisition. Hence, the WHP portfolio is heavily weighted to biotech.

To help innovation, the US Food and Drug Administration (FDA) has cut the review time for “breakthrough therapy designations” from 12 to two months. Nine companies have been granted this designation for pipeline drugs. This could allow drugs for ultra-rare diseases to reach the market without full clinical trials.

Isaly has also focused on China’s emerging biotech industry. China has passed the US in the number of clinical trials registered, with 1,903 in 2024 versus 1,499 in the US and 899 in the EU. Moreover, Chinese biopharma companies have proved willing to license out products, accounting for 60% of global licensing deals in the first quarter.

Hence WHP has a relatively high exposure in China. This includes Hong Kong-based Duality Biotherapeutics, which is developing “next-generation” antibody-drug conjugate (ADC) therapy to treat cancer and autoimmune disease. ADC is a therapy whereby a monoclonal antibody, able to evade the body’s immune system, is chemically linked to a drug. It binds to specific proteins found on cancer and other malignant cells, enabling the drug to enter the cell and kill it without harming other cells. Isaly calls Duality “high risk with no drugs yet on the market, but the best in its class and with a promising candidate for a particular form of lung cancer”.

California-based Guardant Health, a gene-sequencing-based diagnostics firm comparable to Illumina, is medium risk, he says. Its blood tests can detect signs of remaining cancer after treatment or identify it at an early stage. Isaly expects profitability in 2027.

Korean listed Celltrion, one of the world’s three major biosimilar companies, is least risky. Patent expirations open up the market for biosimilars – drugs which are very similar to existing patented ones. Celltrion “should become dramatically profitable in 2026”.

Hedge-fund strategy

Maybe Isaly will one day return as an investment trust manager. For now, he runs WHP as a hedge fund, with both long (159% of net assets) and short (71%) positions across 40-55 holdings. Isaly is supported by five highly qualified analysts, who also manage three smaller funds, including an emerging markets healthcare fund.

For eligible investors, WHP is open for investment monthly, with quarterly redemptions subject to 65 days’ notice. The management fee of 0.6% is low, but there is a generous performance fee. This may not be encouraging, but the best funds are often those that are hard to access.

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How did the protests in Iran start?

The latest protests in Iran started with the bazaaris – the normally conservative Tehran merchant class who, two generations ago, were the financial backbone of the 1979 Revolution. On 28 December, shopkeepers in the capital’s Grand Bazaar went on strike in protest at the government’s handling of the nation’s collapsing economy – and their own inability to trade due to the volatility of the currency and inflation. Other businesses swiftly followed, and protestors took to the streets in a wave of protest that rapidly spread to all parts of Iran. Thousands have since been killed in a brutal crackdown by the regime. After a year of economic crisis made worse by the wave of US and Israeli air strikes in the summer, president Masoud Pezeshkian had nothing to ease the sense of a failing government and state when he gave a candid speech in December admitting that he had no solutions and the country was “stuck”. “If someone can do something, by all means go for it,” he told students in a speech that went viral.

What’s happening in Iran's economy?

Last year, the rial lost 45% of its value (crashing to an all-time low against the US dollar), destroying the purchasing power of Iranians. The official inflation rate was 43% (higher than anywhere except Sudan and Venezuela) – taking the price of everyday staples such as bread beyond the reach of some, and hitting even relatively well-off Iranians hard. The economy shrank last year by 1.7%, battered by lower consumption and interrupted oil output from the 12-day war with Israel, with a sharp 2.8% drop expected this year (according to World Bank forecasts). Unemployment is very high in a country of 90 million people, with some estimates putting the employment rate at just 41%. Around a fifth of the population is living below the World Bank’s poverty threshold. Parts of society are experiencing food shortages, due to poverty, while chronic water shortages after five years of drought have added to the sense of desperation – as has the blow to national prestige from the fall of Shia allies and clients such as Assad in Syria and Hezbollah in Lebanon.

What does this mean for Iranians?

All this created the conditions for urban youth and rural workers – frustrated by stagnant wages, lack of jobs and declining life prospects – to join the expanding protests. There is still notable support for the regime and a very divided opposition, which makes imminent state collapse or revolution unlikely, according to most analysts. However, the economic crisis is viewed by most Iranians as part of a wider systemic failure – combining mismanagement, entrenched corruption, a bloated public sector and lack of private investment, elite capture of key sectors (especially by state security actors), and the effects of long-running sanctions.

How have sanctions affected Iran?

The economy has been strangled by ever-tightening Western sanctions since 2012, when then-US president Barack Obama ramped up the pressure over Tehran’s nuclear programme and convinced the EU to follow suit. With Iran cut off from the Swift global payments system, the rial slumped, inflation soared, investment declined, and Iranians felt worse off. That year saw Iran’s first significant contraction since the early 1990s, and since then “growth has been essentially half the rate it was up until that point”, says Esfandyar Batmanghelidj of the Bourse & Bazaar Foundation think tank. Between 2000 and 2012, average annual growth remained steady at 4.4%. Since then, it’s been 1.9%.

What about Iran's oil?

Since the 1979 revolution, Iran has relied heavily on oil and gas exports. They have long funded the state, paid for imports and sustained social spending. In good years, when oil prices were high and exports flowed, growth followed. In bad years, the economy contracted sharply. This dependence leaves Iran unusually exposed to geopolitics. As such, Iran’s fortunes have tended to rise and fall with sanctions regimes and diplomatic turns rather than domestic productivity gains. Each major shift in foreign policy – whether a nuclear agreement or its collapse – ripples through household incomes.

How does foreign policy affect Iran's economy?

After Iran signed its nuclear deal with the US and other world powers in 2015 – sanctions relief in exchange for tight restrictions on nuclear activity – growth rebounded, inflation fell to single-digits, and oil exports rose to a peak of 2.8 million barrels a day (b/d) in 2018, for example. But when Donald Trump pulled the plug on the deal, Iran was once more cut off from Swift and oil exports fell to just 300,000 b/d in 2019. Moreover, sanctions did not simply shrink the economy; they distorted it, creating parallel markets favouring those with connections to the elite, and deepening inequality. More recently, Iran’s vulnerability to external events has also been clear. In the seven months since Israel launched its 12-day war against Iran in June, the rial lost 40% of its value. Annual inflation hit 43% in December, while food inflation soared to 72%, and the price of bread rose 113%. Corruption, on an epic and almost shameless scale, further distorts the economy. The Islamic Revolutionary Guard Corps, the country’s security service loyal to the supreme leader Ayatollah Khamenei, for example, controls a vast commercial and financial sector that “benefits from measures that hammer the wider economy”, says The Economist.

Will Iran's regime survive?

As MoneyWeek went to press, it looked as though the protests were ebbing in the face of the exceptionally brutal and bloody state response. Donald Trump has warned repeatedly that the US would strike Iran again if the government kills peaceful protesters, but as yet, that killing has progressed and intensified with impunity. A crucial factor is the lack of a united opposition. This is certainly a desperate moment for Iran. But while anger and misery are abundant, the lack of coordination – and common ground on what the future should look like – means that it may not yet be a revolutionary one.

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Almost exactly a year ago, Nicolás Maduro and his wife Cilia Flores arrived in triumph at Venezuela’s National Assembly in Caracas for his third presidential swearing-in ceremony. After being plucked from their beds by US commandos, and deposited in one of New York’s toughest jails, they will have plenty of time to ponder the difference 12 months can make. Yet Maduro “put on a remarkable display of insouciance” right until the last, says The Times. As US military forces assembled off the coast, he donned a sombrero and was seen dancing on stage with supporters and attending Christmas tree lightings.

For all his apparent buffoonery, Maduro, 63, is “known to be a cunning and ruthless operator” who relished “playing the role of David to the US Goliath”, says the Financial Times. Until now, he’s always been a survivor. In 2018 he dodged a drone attack at a military parade; in 2020 he withstood a botched mercenary incursion. Maduro had an unlikely rise to power, assuming “the revolutionary mantle” of his mentor, the leftist strongman Hugo Chavez, following his death from cancer in 2013.

But against predictions, he hung on to power – even as Venezuela’s economy collapsed under his regime’s mismanagement – by viciously crushing dissent, subordinating courts and freely dispensing patronage to consolidate his power. Elections were held, notes The Times, “but outcomes were rarely in doubt”. Under Maduro’s rule, Venezuela – which has the world’s biggest proven oil reserves – suffered one of the stiffest contractions ever suffered by an economy, anywhere. Since 2013, GDP has shrunk by almost 80% and corruption, trafficking and violent crime has flourished amid a growing scarcity of basic commodities. The result has been an “unprecedented” exodus. As many as eight million Venezuelans, or a third of the population, have fled the country, according to UN figures.

Who is Nicolás Maduro?

Born in 1962, and raised in El Valle, a blue-collar suburb of Caracas, Maduro was “steeped in left-wing activism from an early age”, says The Telegraph. He began his political career as president of his high school’s student union – though records show he never graduated. A keen baseball player, Maduro travelled to Cuba in 1986 “to receive a year of ideologic instruction”, notes Fortune, eventually returning to Caracas to work as a bus driver and union activist. He became a Chavez supporter after “El Comandante” was jailed for a failed coup in 1992, and rose rapidly through the ranks of the ruling party when Chavez took office in 1999. Nonetheless, the latter’s deathbed anointment of Maduro as his successor “stunned supporters and detractors alike”.

Soon after Chavez’s death, Maduro went on TV to claim the spirit of the late revolutionary had “reappeared to him as a tiny songbird” while he was praying in a chapel, says The Telegraph. This was in marked contrast to the reality of the “heavily armed militias of motorcycle-riding Chavista supporters” he deployed “to terrorise opponents”. The US alleges that Maduro and his wife Cilia – whom he called the “first combatant” instead of first lady – were involved in a drug-trafficking network run by Venezuelan military officials called the “Cartel de los Soles” (Cartel of the Suns), responsible for transporting thousands of tons of cocaine into the US.

Most Venezuelans are rejoicing at the dictator’s removal even as they fear what might happen next. For Maduro, the future looks bleak – he will “soon face the full wrath of American justice on American soil”, said attorney-general Pam Bondi, though Maduro is a man who is always thinking of how to get what he wants out of any situation, says one former associate. Right now, that looks quite a challenge.

What does this mean for Venezuelan opposition figure María Corina Machado?

With Nicolás Maduro deposed, this “should be María Corina Machado’s moment”, says the Financial Times. But Venezuela’s main opposition leader, who has been living in hiding for many years, faced difficult choices. Having left the country to accept the Nobel Peace Prize in Oslo in December, should she return to her homeland? Or call her supporters onto the streets to push for regime change?

Machado, 58, has been on a “roller coaster”. An industrial engineer from Caracas, her political career peaked with a resounding victory in the opposition’s primary election in 2023. A subsequent ban on holding public office forced a retreat into hiding. She then won the Nobel Peace Prize, only to hit a new low with the “humiliation” of a snub from Donald Trump. Despite her warm comments about the US president and his actions in her country, Trump decided she lacked sufficient “support or respect” in Venezuela to be the leader. Trump is instead working with Maduro’s deputy, Delcy Rodríguez, who is now Venezuela’s acting president.

The reason for the snub, according to The Wall Street Journal, is that Trump was warned by CIA analysts that Machado, and her presidential candidate, Edmundo González Urrutia, would struggle to gain legitimacy and face resistance from pro-regime security services, drug trafficking networks and political opponents.

The Washington Post thinks the decision may be more personal – Trump is simply irritated she accepted the Nobel Peace Prize. “If she had turned it down and said ‘I can’t accept it because it’s Donald Trump’s’, she’d be the president of Venezuela today,” a source told the newspaper.

Trump has talked of a democratic transition after the oil industry has been rebuilt, something he says could take 18 months, but which could take longer, giving the regime opportunities to thwart the opposition or “simply outlast Trump”, says The Economist. The best hope for Machado is to “try to speed things up”.

Machado appeared on Fox News on 5 January and thanked Trump for his “courageous actions”, promising she could turn Venezuela into an energy hub, “suggesting sweet talk is still her method”. “Machado has proved remarkably resilient and canny. But her biggest challenges lie ahead.”

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The Aberdeen New India Investment Trust seeks to deliver long-term outperformance by investing in exceptional Indian stocks. Our bottom-up approach targets quality businesses benefiting from India’s structural growth. We focus on five key traits: resilient business models, strong finances, supportive industries, capable management teams, and robust practices in the field of environmental and social governance (ESG).

Stock selection drives returns, so we remain agnostic with respect to sectors and benchmarks. If a company fails our quality threshold, we don’t own it – even if it’s a market leader. We also avoid stocks priced beyond their earnings potential. The result is a focused, high-conviction, all-cap portfolio of India’s best ideas. And because quality typically holds up better in periods of volatility, the fund can offer a defensive edge in downturns.

Three Indian stocks to consider for your portfolio

Bharti Airtel (Mumbai: BHARTIARTL) is one of India’s leading integrated telecom providers, offering mobile, fixed-line, broadband and enterprise services. Known for its strong balance sheet, disciplined execution and cost control, Airtel is riding the wave of smartphone adoption and the rollout of 5G-mobile networks.

With more than 280 million smartphone data users, Airtel’s subscriber base continues to expand, driving higher average revenue per user and increasing market share. India leads the world in data generation, and Airtel is well positioned to capture this rising demand.

The country has the world’s second-largest online population and the most active market for large-language model (LLM) users, while offering some of the lowest data costs globally: an estimated £1.50 per month for between 20 and 30 gigabytes GB. In a sector that has consolidated from 12 players to three, Airtel stands out as the most commercially savvy and financially disciplined operator.

Mahindra & Mahindra (Mumbai: M&M) is a powerhouse in agriculture. From SUVs to tractors, it dominates India’s vehicle sector: it is the country’s top tractor maker with a 43% market share. Agriculture may not drive GDP growth, but as the sector is one of India’s largest employers, demand for farm machinery remains strong. Given low levels of mechanisation, we believe tractor sales could grow by an annual 10% over the next few years, providing cash flow for Mahindra’s push into premium vehicles and electric vehicles (EVs) – locally made and competitively priced.

This dual strength allows Mahindra to profit from India’s structural growth. The stock has delivered solid gains this year despite market headwinds, reflecting its excellence in innovation and execution. Mahindra is primed for sustainable growth and margin expansion, making it a compelling long-term opportunity.

Aegis Logistics (Mumbai: AEGISLOG) is India’s leading integrated oil, gas, and chemical logistics player. It has launched a two-phase $5billion capital-expenditure plan to drive long-term growth.

Aegis boasts a first-mover advantage at key ports and is expanding capacity. Fundamentals are solid too: a net cash position since 2018, a strong balance sheet, and management that consistently delivers. Meanwhile, India’s rising demand for liquefied petroleum gas (LPG), the shift away from fossil fuels, and domestic supply lagging consumption have all pushed natural-gas prices higher, benefiting Aegis.

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How big is Venezuela’s oil industry?

Venezuela’s oil industry is about a quarter of the size it used to be. Venezuela has the world’s biggest proven reserves of oil, estimated at more than 300 billion barrels, or around 17% of the global total. The oil lies onshore, and the vast majority is in the central Orinoco belt – south of the Orinoco River – in a well-mapped 50,000 sq km zone that’s probably the biggest single hydrocarbon deposit on Earth. But in recent decades, Venezuela’s once-surging stream of oil has dwindled to a trickle. Production peaked in the 1960s and 1970s, when US and British oil companies dominated, producing 3.5 million barrels a day, or around 7% of global output at the time. Following nationalisation (in January 1976) production fell, but then rose again until a late-1990s peak. Since the turn of the century, it has slumped, from more than three million barrels/day to a trough of under 700,000 in 2021 and 960,000 in 2024. That’s less than 1% of global supply and most of it goes to China.

What happened under Chávez?

Venezuela's oil production fell slightly under the socialist president Hugo Chávez (1999-2013), but under his chosen successor – the incompetent, corrupt and increasingly authoritarian Nicolás Maduro – production has cratered as the economy tanked. Decades of corruption, mismanagement, underinvestment and a lack of, or botched, maintenance at PDVSA (the state oil company) have severely degraded Venezuela’s infrastructure and capacity. As Maduro tightened his grip by rigging elections and crushing protests, sanctions imposed by the US (and Europe), especially after they were tightened in 2019, have restricted Venezuela’s access to financing, many international markets and vital new technology. More basically, Venezuela’s heavy crude must be blended with diluents such as naphtha, which is hard to source due to sanctions and related supply issues, thus constraining production. Meanwhile, many skilled workers left the industry – indeed, millions of Venezuelans left the country altogether – compounding technical challenges.

What is Donald Trump’s plan in Venezuela?

To take over and revitalise Venezuela’s oil industry, while “ruling” Venezuela from Washington, with Marco Rubio as the absentee viceroy and the current government still in place. For months, Trump touted his military build-up against Venezuela as an anti-narcotics operation. Within hours of Maduro’s removal, Trump announced, “We are in the oil business”. The oil business in Venezuela “has been a bust, a total bust for a long period of time”, Trump said. “We are going to have our very large United States oil companies… spend billions of dollars, fix the badly broken infrastructure… and start making money for the country.” Having decapitated the regime, the US is apparently content to leave the rest of the regime and state apparatus in place – a strategy that has raised questions about exactly how involved Maduro’s deputy (and new interim president) Delcy Rodríguez was in the US mission.

Was Maduro's capture an inside job, then?

It seems Rodríguez was made an offer she couldn’t refuse, or chose not to. As well as being vice-president, Rodríguez was also Venezuela’s oil minister from 2024 and head of the intelligence service from 2018. According to Bloomberg, US oil-industry executives and lawyers saw her as an impressive figure who was navigating Venezuela’s industry through international sanctions, economic pressures and internal mismanagement. In recent months, the US oil industry reportedly lobbied for her as Maduro’s replacement – and Trump’s team came to the same conclusion. Both groups decided that Rodríguez, long seen as a “bridge between the government and private sector, could stabilise Venezuela’s oil-based economy, and facilitate American business faster” than the opposition leader, María Corina Machado, could.

Hasn’t the US got plenty of oil?

Indeed, the US is the world’s biggest oil producer. What it hasn’t got much of these days is the kind of heavy crude produced in Venezuela. That matters because of a structural tension within the US oil industry as a whole; namely, that its big Gulf Coast refineries, built decades ago, are no longer compatible with the type of oil it now produces. The US’s supremacy in oil has been built on the shale-oil revolution: light crude, most of which gets exported. But “if America is going to keep its cars fed with gasoline, it needs heavy, gloopy crude”, says Ed Conway on his Sky News blog. “And since it costs many, many billions of dollars to overhaul refineries, no one particularly wants to do that anytime soon.” The US might be producing more oil overall, but it’s also importing far more heavy oil. In 1978, only 12% of US imports were heavy. Now it’s 70% – mostly from Canada and a small slice (sanctions notwithstanding) from Chevron’s joint venture in Venezuela.

Was the Venezuelan oil grab an easy win for the US?

Hardly. For starters, there’s the sheer scale of the investment required to repair and retool Venezuela’s crumbling infrastructure. According to analyst Jorge Leon of Rystad Energy, roughly doubling production to two million barrels by the early 2030s will cost an estimated $115billion. That’s three times the combined capital expenditure of ExxonMobil and Chevron last year. At current oil prices, around $60 a barrel, and with the world already oversupplied, there’d have to be a truly compelling case for major investment in Venezuela, with its relatively low-quality, cheap oil that’s pricey to refine. Right now, that’s just not there.

Why not?

Because not much has changed except the president, and the economics doesn’t stack up. Venezuela has not suddenly become a better place for the likes of Chevron and Exxon to invest billions, says Yawen Chen on Breakingviews. “It’s the same military-dominated petrostate with corruption issues as before, plus a potentially even worse security situation” – and certainly a more unpredictable one. The country is awash with guns, as Ambrose Evans-Pritchard points out in The Telegraph, and paramilitary “colectivos” exact fees before letting a single barrel move. For oil companies to invest would require the kind of political stability and respect for property rights that once helped make Venezuela one of the richest countries in the world. Trump’s snatching of Maduro was “spectacular and swift”, says The Economist. “The economic reward from it will be neither.”

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If nothing goes awry between now and the new year, 2025 will end up being a much better year for stocks than looked likely eight months ago. The US tariff sell-off in early April was severe at the time, but the slide ended faster than expected and markets rebounded quickly.

For all Donald Trump’s bluster, the reality is that he backtracked on the level of tariffs pretty significantly. Foreign governments signed a bunch of deals to placate him, including many promises around investment and trade that they will do their best not to deliver. Central banks began loosening monetary policy a bit more. So stocks went up again: the MSCI ACWI index – which includes developed and emerging markets – have returned a very strong 18% (including net dividends) in local currency terms.

It is likely that the full effect of the tariffs is yet to show up. It is also plausible that at some point the Trump administration will a) notice that the rest of the world has no intention of actually funnelling hundreds of billions of dollars more into the US and b) start to worry about some early signs of a slowdown in the part of the economy that is not fuelled by AI spending. At that point, it may decide to start a fresh trade war with China and Europe. However, until then, we are where we are: business as usual.

A long-term view on US stocks

Yet something is different. US stocks have returned around 16% this year – an above-average performance. However, that is only just in line with Europe and well below many European countries (including the UK), Japan and emerging markets. Note too this is in local-currency terms: factor in the drop in the US dollar and investors have done better in almost any other market. This runs against American outperformance in recent years and is the opposite of what most strategists were expecting at the start of 2025.

We cannot know whether this will happen again next year. However, on a long-term view we can note that the MSCI USA index trades on a forecast earnings yield (earnings divided by price) of around 4.5%. The MSCI Europe index is on an earnings yield of over 6.5%, the MSCI Japan is around 6% and the MSCI Emerging Markets is a bit under 7.5%.

In theory, the earnings yield is a direct proxy for expected longer-term real returns. You either get earnings back as dividends or reinvested by companies to create growth – either way, a higher yield should mean stronger returns. Reality is never that simple, but it is unarguable that the US will have to keep delivering much better earnings growth than the rest of the world to overcome the drag of starting on a lower yield.

So on a longer-term view, the odds are in favour of an extended spell when the rest of the world outperforms. This is why our asset allocation portfolio – which I will be reviewing shortly – keeps significantly underweighting the US despite its strong past performance. That call may finally be starting to work in our favour.

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This year’s best-performing emerging market (EM) shouldn’t really be classified as an emerging market at all. South Korea’s high-tech industrial base is a match for any of the world’s leading developed economies. Yet restrictive trading rules on the local bourse see it consigned to the same global investing basket as Egypt and Peru.

Nonetheless, the local Kospi index has rocketed 66% this year. That reflects two massive tailwinds: AI, and a closing Korea discount. For the first theme, memory-chip champions Samsung and SK Hynix are cashing in on Big Tech’s splurge on semiconductors. For the second, Seoul has begun to implement pro-shareholder reforms, a copy of similar changes in Japan that unleashed a multi-year stockmarket rally.

Emerging market winners

Korea’s gains have helped push the MSCI EM benchmark to a 26% gain for the year to date. After years of lagging the developed-markets index, that rise comfortably outstrips the 18% gain for MSCI’s equivalent index for developed markets.

Those gains partly reflect more benign financial conditions for the developing world. US interest-rate cuts and a weaker dollar tend to push capital out of Wall Street and into more exotic locales. Yet the upswing has not been universal. This year’s big winners have tended to offer exposure to one of 2025’s two winning trends – AI-focused tech and the global metals rally. Like Korea, Taiwan’s Taiex (+20.5%) is rallying on soaring demand for AI equipment, largely driven by the enormous success of local chipmaker TSMC.

The mainland Chinese CSI 300 is up a healthy 17.5%; Hong Kong’s tech-biased Hang Seng has done even better, with a 28.5% gain. The east Asian economies now jointly account for 60% of the MSCI EM index, making the index a more concentrated bet than many EM investors would ideally like.

India, the index’s third-largest component, provides some diversification. The country’s thrilling growth story resembles that of China in the early 2000s. Yet share prices have become stretched, and the BSE Sensex’s 8% gain for the year is lacklustre. While India is a global leader in IT outsourcing, local markets offer little exposure to AI.

Southeast Asia is a mixed bag. Vietnam’s VN index has rocketed a third in the same year that it won an upgrade to emerging-market status by index provider FTSE Russell. Indonesia’ IDX Composite has gained 21%.

Malaysia’s KLCI is flat, while the Philippines’ PSEi index has slipped 7% amid signs of a domestic slowdown. Thailand’s SET index has retreated 10% as investors flee political turmoil and signs of a decline in the country’s crucial tourism sector.

Metals rally helps emerging markets shine

Gold’s 60% rally this year has helped South Africa to shine. The JSE Top40 index has had a banner year, with local miners and an improved political outlook propelling it to a 40% gain. Copper champion Chile has done even better, with the IPSA index enjoying a massive 50% rally.

But not all commodities are created equal. The oil-heavy Saudi Tadawul all-share is off 13% amid weak energy prices. The US has picked fights with both the Mexican and Brazilian governments this year, but you couldn’t tell by looking at their stock exchanges, up 28% and 32% respectively.

The White House’s 50% tariffs on Brazilian imports have “backfired”, because “Brazil exports more than twice as much to China as to the US”, says Craig Mellow in Barron’s. Brazil’s strength in agriculture makes it a highly complementary trading partner. Investors also hope that next year’s presidential election could bring a pro-market candidate to power, echoing Javier Milei’s success in Argentina.

It has been another good year for emerging Europe. Poland, the region’s biggest market, is catching up fast with western Europe. A boom in defence spending has helped push the WIG20 to a 39% gain. Finally, difficult post-crisis reforms continue to pay dividends in Athens. The ASE index has rallied 41% this year and 119% over the past three years. The protracted Greek tragedy is finally over.

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Our approach is to focus on quality companies, defined as those that have achieved a return on capital persistently above the cost of capital over time. These companies often pay a dividend as a result of the profitability they have generated in cash terms. Seen this way, the dividend is very much an outcome: a marker of the company’s economic productivity, and therefore, we believe, more likely to be sustainable and capable of growing over time.

This approach is distinctive in emerging markets, where it steers us away from the commodities roller-coaster and the cyclical sectors that accompany it, and towards companies with the more consistent, stable financial characteristics that we seek.

Three emerging market stocks to consider

Elite Material (Taipei: 2383) is one of the companies we own with exposure to hardware used in the AI-supply chain. The company is the leading producer of halogen-free copper clad laminate materials used in printed circuit boards, which have applications in IT infrastructure and cloud computing, but also in consumer electronics.

A key attraction of this long-held position is the company's ability to adapt to the changing demand cycle we have seen in information technology over the past five years. Thanks to a dominant position in a product that can be used in numerous applications, the company has been able to benefit from these varying peaks in demand and the current boom in spending on AI servers. Reflecting the recent enthusiasm in the market for AI stocks, the share price has more than doubled over the year to date. The company trades on just over 23 times forecast 2026 earnings.

Yili (Shanghai:600887), China's largest dairy company, produces fresh and Ultra High Temperature milk (representing around two-thirds of revenue), milk powder, and dairy products including yoghurt and cheese. China’s dairy market has been structurally challenged in recent years, but there are early signs that the supply-demand balance is starting to improve, which should ultimately lead to a recovery in milk prices.

Dairy consumption is at relatively low levels, particularly in comparison to developed markets, and we expect this to increase over time as consumer spending rises. At the same time, the company’s leading position across multiple categories and price points gives it a degree of pricing power. These two factors are the twin forces that should provide a strong tailwind. Scale also brings considerable distribution advantages. The company trades on 16 times forecast earnings and the trailing dividend yield is 4.5%. Earnings are expected to grow 10% next year.

Hypera (São Paulo: HYPE3) is a Brazilian consumer-pharmaceuticals group that has acquired a portfolio of market-leading brands in diverse categories such as pain relief, flu remedies and digestive health. The product line also includes dermatology and vitamin supplements.

The company has recently undertaken a programme to reduce excess working capital, a process now largely complete. Although the business is somewhat seasonal owing to the prevalence of cold and flu medicines in the company’s product range, we believe the valuation of the company to be very reasonable given the underlying quality on offer. The stock trades on 14 times forecast earnings and yields 4.7% on a trailing basis.

Our annual conference, which this year coincided with the magazine’s 25th birthday, was a roaring success. For those who weren’t there, here is an overview of what you missed. Andrew opened proceedings by noting that the magazine’s quarter-century was bookended by two huge technology booms, while the years in between had seen extraordinary events ranging from a financial crisis to a pandemic.

The only thing it hadn’t seen was a normal business cycle, thanks to constant interference in economic cycles and economies by central banks. Calderwood Capital’s Dylan Grice underlined how state meddling was a recurrent theme – well-intentioned efforts to regulate the market only deepened the crises leading to the American and French revolutions. Throw in today’s geopolitical, technological and financial uncertainty, and extreme caution is called for.

Diversify as follows, he says: construct an equally weighted portfolio comprising equities, commodities, precious metals, real bonds, nominal bonds and securities offering exposure to insurance and reinsurance, such as CAT bonds.

The panel following Dylan’s speech, hosted by MoneyWeek’s columnist Rupert Hargreaves of City A.M. and consisting of Jasmine Yeo of Ruffer, Troy Asset Management’s Charlotte Yonge, RIT Capital Partners’ Frank Ducomble and Charlie Morris of ByteTree, highlighted the scope for gold, bitcoin and index-linked bonds to shield investors’ holdings. Charlie said he was convinced that AI is a massive bubble that peaked in late October.

MoneyWeek Wealth Summit highlights

The emphasis then switched to long-term growth opportunities. Enter Vietnam, which has been one of our favourite stock markets since 2005. Dominic Scriven of Dragon Capital says the economy is growing at 7%-8% a year. Exports have moved up the value chain from raw materials to electronics, and consumption is rising. The pro-business Communist government is sacking one million civil servants to make the public sector more efficient.

Japan, meanwhile, is making its private sector more efficient. Nicola Takada Wood of AVI reviewed the progress of the campaign to shake up corporate governance and unlock value. AVI has been a key activist investor in the under-researched small-cap segment of the market. There is still room for improvement – a large majority of the firms trading below book value in the market are small caps.

Ben James of Baillie Gifford focused on AI. It is the latest technological revolution in a series that began with the industrial revolution, the last one being information technology. We are in the early phase of the machine era, and a key theme will be robotics, with robots doing manual tasks everywhere. In this context, Aurora, an unmanned truck group, and Tesla’s robots have caught Baillie Gifford’s eye.

Next we heard from India Capital Growth Fund’s Gaurav Narain. India continues to exhibit robust growth of about 6% a year, powered by a young population’s household spending – the median age is 28. The stock market remains buoyant, too, accounting for a third of flotations worldwide.

A lunchtime discussion about gold was led by Cris Heaton, who quizzed James Proudlock of OptionsDesk and Erik Norland of CME Group. A snap poll of the audience afterwards was bullish.

After lunch, our founding editor, Merryn Somerset Webb, now at Bloomberg, reviewed the lessons of MoneyWeek’s 25 years. Two of them were that diversification and mean reversion always matter. And hold gold.

Then Laura Foll of Janus Henderson explored the perennial problem of the British stockmarket withering away, with former MoneyWeek editor John Stepek, also now at Bloomberg. The market’s overall valuation is in line with its long-term average, while small and mid caps still look cheap. Foll highlighted commercial property as an area unlikely to become obsolete as technological advances gather pace.

Diana Choyleva of Enodo Economics has become more positive on China in the past few years. There is scope for a bull market now that the government is trying to encourage people to hold stocks rather than property. Pantheon International’s Charlotte Morris reminded the audience that privately held companies outnumber listed companies threefold, so it is important to have exposure to private equity. The same goes for healthcare, according to James Douglas of Polar Capital. The pace of innovation remains impressive and demand robust – concern over the Trump administration’s capricious health policies has eased and valuations are appealing.

The afternoon panel, focusing on diversifying beyond the US and its AI-driven tech stocks, along with the relative merits of small and large caps, was hosted by MoneyWeek’s columnist David C. Stevenson. David was joined by Martin Connaghan of the Murray International Trust, Simon Barnard of the Smithson Investment Trust and Swathi Seshadri of MCP Emerging Markets. Value lies beyond the US, while Simon Barnard noted that the AI boom may be like the railroad one – more useful to future users than the original investors.

Following Dr Pippa Malmgren’s riveting explanation of how stablecoins could remodel the global financial order, MoneyWeek’s funds columnist, Max King, finished the conference by reminding readers to stay optimistic and recall that sometimes value stocks were cheap for a reason. The FTSE 100 should soon reach 10,000, he said. This week, it is tantalisingly close.

Thank you to our headline partner Aberdeen, event partners India Capital Growth Fund, OptionsDesk, Polar Capital, QuotedData, RIT Capital Partners, Smithson Investment Trust and Vietnam Enterprise Investments; and association partner The Association of Investment Companies for their support.

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Emerging markets (EMs) are back. The MSCI Emerging Markets index delivered a 31% return over the first ten months of the year, compared with just 18% from the developed markets-focused MSCI World index. Such outperformance has been a long time coming. Investors in emerging-market equities have not enjoyed higher returns than from developed markets in any year since 2020.

These equities provide exposure to countries surfing trends such as urbanisation and industrialisation, and exploiting demographic advantages, such as younger populations. At an earlier stage of their development, their potential is to grow more rapidly. In recent years, however, that story has played second fiddle.

Amid global economic and political disruption, investors have steered away from equity markets perceived as being riskier. The strength of the US dollar – a safe-haven asset – has been a major challenge for many developing economies with significant dollar-denominated debts. And the travails of individual markets – including China, where a debt crisis has caused major problems – have dragged returns down.

Those headwinds now appear to be receding. The dollar has weakened notably this year, with the US reducing interest rates. That has directly benefited EMs, but also had an indirect effect, with lower returns from safer assets such as fixed-income instruments prompting investors to embrace securities that carry more risk. “A weaker dollar typically boosts purchasing power, making imported goods cheaper, and it often lowers the cost of capital,” explains Robert Marshall-Lee, chief investment officer of Cusana Capital. “This stimulates growth, investment and earnings.”

Attractive valuations have also helped win investors round. The MSCI Emerging Markets benchmark’s current constituents are priced, on average, at about 14 times their forecast earnings for the next year, compared with 23 times for the typical US stock. Goldman Sachs therefore hopes that EMs’ rally will endure. Its optimism reflects shifting macro trends, but also the strong earnings performance of many emerging market-based technology companies, which are benefiting from the AI boom.

The outlook for emerging markets in 2026 also looks bright. “The fundamentals of emerging-market economies look sound,” says Raheel Altaf, manager of the Artemis SmartGARP Global Emerging Markets Equities Fund. “[Firms’] conservatism has strengthened their balance sheets; this, alongside supportive valuations, puts them on a good footing to deliver better growth.” Such positives have the potential to drive the outsized returns that investors are often promised from EMs. Research published earlier this year by Amundi forecasted average annual returns from emerging-market equities of 7% – against 6.4% from Europe and 5.6% from the US.

The Amundi report includes higher forecasts for individual markets – notably India, where it predicts a 7.4% average annual return over the next decade. “It offers high-quality, well governed franchises with extensive growth [prospects],” adds Marshall-Lee.

In China, Amundi expects a more modest 6.8% a year. Key AI players such as DeepSeek and Alibaba have helped Chinese equities to perform more strongly in 2025. But there are concerns about the ageing population and its slower productivity and growth. Vietnam could be another interesting market. Reforms designed to boost the private sector, a strong domestic economy, and a wave of companies joining the stock market are all attracting attention.

One big question for many developing countries, however, is the extent to which US trade tariffs will hit growth. Still, the tariffs story varies by country. President Donald Trump has most recently focused his attention on India, threatening the country with an additional 25% penalty if it continues to buy oil from Russia, in addition to the existing 50% tariff already imposed. By contrast, hopes are rising of a trade deal with China. And relations with other emerging markets are warm.

Emerging markets: where to invest

Stay focused on the big picture, says Alex Watts, senior investment analyst at the investment platform Interactive Investor. “Emerging markets are underrepresented in global indices versus their contribution to world GDP and populations,” he points out. A well-diversified fund can help investors manage risk while accessing professional expertise in key markets. “For a very broad and low-cost approach, the Fidelity Index Emerging Markets fund is a passive option with a charge of just 0.2% a year,” notes Watt. Highly rated active funds also offering a broad exposure include JPM Emerging Markets Fund and the Templeton Emerging Markets Investment Trust (LSE: TEM).

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

1. The demise of the smartphone

It is hard to imagine life without them. There are 7.4 billion smartphones in the world and the typical user checks them 144 times a day. And yet, 50 years ago we would have said the same of cigarettes. Everyone smoked in cinemas, on trains and, though it seems unimaginable now, on aeroplanes. Once it was clearly shown that smoking was very bad for your health, it went into steady decline. We are just starting to work out just how bad smartphones are for our mental health. There is a growing body of evidence to show they have a negative impact on cognitive ability, memory, attention and sleep, and create addiction and anxiety. That’s just for adults. The impact on teenagers is worse. There are already moves to put age restrictions on usage, and those may get tighter. Over the next decade, people will give up on the smartphone, taking down one of the biggest industries in the world – and with it the app economy.

2. The robo-economy takes off

Despite all the hype, it will become painfully clear during the 2030s that the AI revolution was oversold. The chatbots don’t actually possess any intelligence and, apart from a few very limited tasks, can’t replace human work. Instead, it is robotics that will prove to be the next great wave of technological innovation. Domestic robots will be the biggest growth industry of the 2030s and 2040s, with smart machines performing dozens of small, dull tasks around the home, from mowing the lawn to cooking meals. People will be more than happy to pay for genuinely labour-saving devices, turning robots into a huge industry.

3. The Indonesian miracle

Lots of attention will be devoted to the contest between China and India to become the largest country in the world measured by population, and the only serious rival to the US as the biggest economy. But it is Indonesia that will really be rising up the rankings. By 2050 it will have a population of 321 million and will still be growing strongly (China will be in steep demographic decline by then). Add in a 5% annual growth rate, the annual average rate for the last quarter century, and by the 2040s Indonesia will have established itself as one of the major global economies. The Jakarta stock market will be home to the fastest-growing new companies.

4. A global stock market emerges

The competition between rival financial centres consumes a huge amount of attention. The decline of London, the rise of the US and the emergence of the Gulf bourses worries finance ministers, and companies have to decide where to list their shares. By 2050 a lot of that will seem irrelevant. Even in 2025 it seems surprising that we still have national stock markets. Technology means that we can trade any bond or equity anywhere in the world at any time of day. Over the next 25 years a single global stock market will emerge, hosted on the cloud, with settlement in a universally recognised crypto currency that is accepted everywhere. National stock markets will turn into a relic of interest only to a handful of financial historians.

5. A British revival

When we look back from 2050, it will seem that today’s problems were surprisingly easy to fix. A bond-market collapse late in the 2020s as the country’s debts spiral out of control will prove traumatic and will be followed by a chaotic series of coalitions as the party system fragments. But by the middle of the 2030s, a technocratic government imposed by the IMF, and led by a surprisingly youthful-looking Tony Blair, will start to get the country back on track. Two big changes will make a huge difference. Allowing fracking will enable the country to become the Saudi Arabia of Europe. That will make a corporation tax at Irish levels affordable and trigger a huge wave of inward investment. And switching to a Dutch-German-style social-insurance system for healthcare to replace the NHS will transform the 12% of GDP spent on the medical system. With those two reforms in place, Britain will start to boom again, just as it did under Mrs Thatcher in the 1980s.

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“History is just one f**king thing after another,” declares a vulgar schoolboy in Alan Bennett’s play The History Boys. Surveying the past 25 years can feel the same way. From Iraq to the euro crisis and from Brexit to bitcoin, a great deal has happened over the quarter-century that MoneyWeek has graced newsstands. But not all news stories are created equal.

Hazarding a slightly more elegant periodisation than Bennett’s character, I would argue that the great turning point of the past quarter-century was the financial crisis that began in 2007. For the UK in particular, recent history can be neatly sliced into two periods: the years before and after the great crash.

London loses its crown

In the early 2000s, London could credibly claim to be the centre of global finance. It topped Z/Yen’s inaugural Global Financial Centres index (GFCI) in 2007.

America might be the superpower, the argument went, but London was the world’s capital. Britain’s economy was like the tennis at Wimbledon, a venue for global heavyweights to clash, helped by the English language and an excellent time zone.

The past is indeed a foreign country. Where once the “Sir Humphreys” in Whitehall talked of surpassing New York, today they tremble at unflattering comparisons to Greece. The London stock exchange fears irrelevance. Nvidia alone, valued at $5 trillion, dwarfs the combined value of all London’s blue chips. Deal volume has never regained its 2006 peak of $51 billion (it was just $248 million in the first nine months of this year).

While the technology megabucks fly on Wall Street, one of London’s most notable listings this year has been Princes Group, a purveyor of tinned tuna. It is a perfectly respectable business, but there is a certain desperation in efforts by officials to tout this solid, dull flotation as heralding some great renaissance.

Most tellingly, UK living standards have flatlined since 2007. “[Had the] pre-2007 productivity trend continued, British workers would be 16% more productive today,” says Aadya Bahl on an LSE blog. The significance of 2008 is much more evident in Britain than in America, where growth eventually recovered. The S&P 500 index of US stocks has rocketed nearly 900% since its 2009 low (compared with 153% for the FTSE 100). The UK had placed all of its chips on the wealth generated by the City.

When that bet imploded, the country struggled to carve out a new role for itself. Ever-Tiggerish, Americans bounced back from the banking disaster, reinventing themselves as shale-oil prospectors and smooth-talking tech venture capitalists; Britain has more resembled a middle-aged man bouncing between odd jobs after an involuntary redundancy.

Far too easy money

Gordon Brown’s hubristic claim to have abolished “boom and bust” was widely panned as the Great Recession got underway. But in this, the chancellor-turned-PM was only mirroring the wider economic establishment, where the notion of a “Great Moderation” (built on the supposed inflation-fighting genius of central bankers) was all the rage.

Central banks treated us to further financial wizardry after the subprime meltdown by unleashing ultra-low interest rates and the money-printing of quantitative easing (QE). More tranches were added whenever markets started to feel queasy. By the peak in 2021, the Bank of England’s QE portfolio had swollen to £895 billion, or 40% of UK GDP. Contrary to the worst fears, inflation did not immediately rocket. What happened was more insidious.

With credit all but free, risky behaviour went unchecked for years. On Wall Street, the era of ultra-low rates led to some truly daft companies and unworkable business models. The most notorious was WeWork, a poorly run office landlord that somehow convinced venture capitalists it was a ground-breaking tech innovator. Investors threw tens of billions at the idea before it filed for bankruptcy in 2023.

The impact on governments’ behaviour was even worse. Easy money anaesthetised bond markets, removing pressure on states to get spending in order. Although not openly admitted, this was by design. The hope was that cheap borrowing costs would prompt governments to borrow and spend more, thus ending the world economy’s post-crisis slump.

Governments binge on debt

It took a pandemic for the balance of global savings and borrowing to shift decisively. Anyone wondering why interest rates and inflation have spiked so violently of late need look no further than the world’s finance ministries. With furlough schemes, governments got out the credit card, treating tens of millions of workers to a year off. Then came the energy shock after Russia’s invasion of Ukraine in 2022, combined with a pressing need to find more money for defence and an ageing population.

The result has been an explosion in public borrowing. In 2000, UK public debt stood at 37.7%. Today it is 103%, with the Office for Budget Responsibility warning that on the current trajectory it will hit 270% of GDP by 2070. It’s a similar story in most of the developed world.

The mirror image of worsening government credit has been surging gold prices. The yellow metal started the year 2000 at $289 an ounce (oz). Today it trades at $4,035/oz. That 1,294% gain arguably makes it the trade of the century so far, far outstripping the S&P 500’s 365% return over the same period. MoneyWeek is a great fan of the yellow metal, but even we must admit that at current levels, vertigo is setting in.

Bitcoin fanatics will argue that theirs is the trade of the millennium. MoneyWeek has been cautious about embracing the highly volatile cryptocurrency. Claims that bitcoin is “digital gold” are suspect. Bitcoin tends to behave more like a risky asset, rising and falling together with frothy tech stocks, than it does a hedge.

Yet our scepticism is proving hard to maintain. Since its first boom in 2017, the digital currency has gone on to return over 500%. Modish “meme” coins can do even better. Investing is about growing and preserving pre-existing wealth, rather than making a fortune from nothing. Yet pick the right meme coin and you can become wealthy overnight. Still, a lottery ticket can also do that for you.

So much for peak oil

Gordon Brown’s talk of ending boom and bust is far from the only dubious prediction over the past 25 years. During the 2000s, looming “peak oil” was a persistent worry due to the depletion of existing reserves. Credible estimates predicted that production would peak sometime around the late 2000s, before plummeting. Oil prices did in fact rocket at the end of the decade, rising from $30 a barrel in April 2004 (when MoneyWeek suggested readers buy) to more than $140 a barrel in 2008 (shortly before it told readers to sell).

Yet peak oil was not to be. All of that talk of coming shortages only prompted capitalists to go out and find more. In the 2010s, Texan cowboys flooded world markets with shale. Today, peak production is thought to be likely to occur in the early 2030s.

Peak oil was overdone, but the warning that energy was set to become more scarce has proved accurate. As cheaper production sources were exhausted, more marginal reserves such as shale require a higher price point to be economical. At $64 a barrel, Brent crude prices trade at a level regarded as cheap by current standards. But that is still much higher than its $29 a barrel of November 2000.

Emerging markets diverge

MoneyWeek was launched just as emerging markets (EMs) were gathering steam. The first decade of the 2000s was a golden era for developing economies, as China entered the World Trade Organisation, and Asia and Russia recovered from financial crises. From January 2001 to the end of 2009, EM equities gained 200%, compared with a measly 4% in developed markets. The rise of EMs has remained a vital theme, but one that proved messier than expected.

For one thing, growth has had a frustrating tendency to fail to translate into equity gains. The EM index has returned a paltry 28% since the start of 2010. Leadership of the complex has narrowed as Brazil, Russia and South Africa variously stagnated.

Yet defying repeated predictions of an imminent “China crisis”, China has kept on growing, although the recent property bust is proving the most serious test yet. Many developing economies become trapped at the “middle-income” level, defined as GDP per capita of between $1,000 and $13,800. With GDP per head of $13,300 as of last year, China finds itself on the cusp of joining the world’s high-income economies.

Since Covid, the world’s second-largest economy has emerged as a global leader in electric cars and AI. This has not made for very exciting investment returns (the CSI 300 index is still 13% off the level it reached at the height of an investing mania in 2015). But as geopolitical facts go, none is more fundamental to the future than the Middle Kingdom’s growing power.

Don’t buy at the top

Other popular narratives today may also ultimately prove wide of the mark. Tech leaders in Silicon Valley are currently warning that automation could lead to a jobless future, while simultaneously worrying that low birth rates will starve the economy of working-age people. The future, they incoherently claim, is one of both mass unemployment and a chronic labour shortage. Both problems can’t be true at once.

What about Britain? Trying to be optimistic, one might argue that pessimism has reached such an extreme level that it won’t be very hard for growth to surprise on the upside. The FTSE 100 has returned a decent 75% over the last five years.

Yet its performance this century has been dire. Up 52% since MoneyWeek launched, the blue-chip index has given investors a measly annualised return of 1.75% over 25 years (generous dividends on top do soften the pain of sluggish capital growth, though). Measure from the 2003 low, and the index has returned 165%.

No country knows more about investing misery than Japan, one of MoneyWeek’s long-standing favourites. Last year, the Nikkei index regained its 1989 peak; it took 34 gruelling years. The Topix share index has returned 275% since 2013, when Shinzo Abe launched economic reforms, but getting there has involved a long and painful wait.

The investment industry is fond of reminding us that over the long-term stocks tend to deliver an attractive rate of return. Yet that is an average. As grinding returns in the UK and Japan have shown, if you buy near the top, your portfolio’s recovery time risks being counted in decades. Those currently going all-in on the US tech frenzy have been warned.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

History may merely rhyme, rather than repeat itself, but it certainly often offers a neat sense of symmetry. When this magazine launched on 4 November 2000, air was hissing loudly out of the dotcom bubble. Today, with MoneyWeek’s 25th birthday imminent, stock markets are once again indulging in a bout of exuberance, possibly irrational, over a new technology. Meanwhile, globalisation and the liberal internationalist world order are being eclipsed by mercantilism and military conflict, while growth has stagnated in much of the developed world.

This is the context in which we are holding Turmoil, tariffs and Trump 2.0, this year’s annual wealth summit on 7 November. After an introduction from MoneyWeek editor Andrew Van Sickle and summit host Dominic Frisby, keynote speaker Dylan Grice of Calderwood Capital will focus on the challenges of this “high signal” environment, before we look at how to get to grips with the risks.

First, MoneyWeek columnist Rupert Hargreaves will lead a discussion among four top multi-asset investors: Charlotte Yonge of Troy Asset Management; Charlie Morris of ByteTree; Frank Ducomble of J. Rothschild Capital Management; and Jasmine Yeo of Ruffer. They will explore the role of stocks, bonds, gold, crypto and more in protecting and growing your portfolio.

Then the agenda become more optimistic, reflecting the fact that for all the world’s intractable problems, there is always money to be made somewhere. Enter Dominic Scriven of Dragon Capital, who will make the case for Vietnam, which has been one of our favourite markets since 2005. Another of our favourites is Japan, and Nikola Takada Wood of Asset Value Investors will outline the corporate governance revolution there.

Baillie Gifford has a knack for finding outstanding growth, so who better than Ben James from the US Growth Trust to tell us how AI could reshape the world. There is also ample scope for long-term gains in India, the world’s fourth-largest economy, as Gaurav Narain of India Capital Growth Fund will explain.

MoneyWeek has liked gold since 2001 – but after the recent surge, are we near the end of the bull market? Gold experts Erik Norland of CME Group and James Proudlock of OptionsDesk will be the guests of contributing editor Cris Sholto Heaton for our lunchtime discussion. Meanwhile, some of our speakers will share their personal investing experiences with Kalpana Fitzpatrick, our digital editor, during the coffee breaks.

MoneyWeek Wealth Summit: afternoon sessions

After lunch, former editor John Stepek will discuss how to tackle the ongoing malaise in the UK stock market with Laura Foll of Janus Henderson and Law Debenture, before Charlotte Morris of Pantheon International explores opportunities in listed private equity. Gareth Powell of Polar Capital will then look at structural tailwinds for healthcare.

Our columnist David C. Stevenson will hear from Carlos von Hardenberg of MCP Emerging Markets, Martin Connaghan of Murray International Trust and Simon Barnard of Smithson Investment Trust about the global outlook. Are small caps and emerging markets set to rally after years in the shadow of US mega caps?

Many of our guests run investment trusts. These are our favourite type of fund – they tend to outperform open-ended funds and offer a better structure for holding illiquid and volatile assets. We expect volatility in the years ahead, and the ability to tolerate it will matter.

The afternoon will also see Merryn Somerset Webb, MoneyWeek’s founding editor, reflect on lessons from the past 25 years. China expert Diana Choyleva will explain how Beijing aims to reshape the world as it competes with the US. Economist, entrepreneur and award-winning author Dr Pippa Malmgren will argue that stablecoins could revolutionise the financial system in our afternoon keynote. MoneyWeek columnist Max King will wrap up with thoughts on why gloomy British investors should be more like optimistic Americans.

We hope to see you there – see moneyweekwealthsummit.co.uk for more details and to register. Thank you to our headline partner, Aberdeen; event partners India Capital Growth Fund, OptionsDesk, Polar Capital, QuotedData, RIT Capital Partners, Smithson Investment Trust and Vietnam Enterprise Investments; and association partner The Association of Investment Companies for their support.

It is not just the London Stock Exchange that has been suffering a relentless decline. It is happening right across Europe’s main bourses. There was a 15% decline in initial public offerings (IPOs) across the continent in the first half of this year compared with 2024, according to accountants EY. Measured by revenues raised, the decline was 50%. The bulk of the IPO market is now in the US, China, India and the emerging stock markets in the Gulf. Europe is falling behind. Just as in London, firms have been leaving the markets, or have been taken over, and very few new companies have been coming through to replace them.

German chancellor Friedrich Merz has a solution. “We need a kind of European stock exchange so that successful companies such as biotech firms from Germany do not have to go to the New York Stock Exchange,” he told the German parliament last week. “Our companies need a sufficiently broad and deep capital market so that they can finance themselves better and, above all, faster.” Instead of separate exchanges in Paris, Frankfurt, Milan and Madrid, a single unified bourse could list all of the continent’s major companies, offering a scale and depth to match New York.

A single, unified exchange would be a lot simpler for investors, especially from North America and Asia. It would have access to a lot more capital, which might mean valuations were higher. True, with Euronext, which links the Netherlands, France, Italy and Portugal, we already have that. But a pan-European exchange would go a lot further. The London Stock Exchange, which has already dropped out of the top 20 for global listings and has seen a relentless decline in the number of companies traded, would almost certainly join. It is in bad enough shape already, and if a new European exchange were formed, it would be even more irrelevant than it is already if it were not part of it.

Would a single European stock market fix anything?

The catch is that this is just the same old, tired formula of more integration that has dominated policy-making in all the major European countries for the last 30 years. It hardly begins to address the major issues facing every European stock market. Firstly, the whole of Europe has imposed far too many rules and regulations on listed companies. In the City, there are an endless series of governance codes to comply with, including diversity quotas for boards and restrictions on executives’ pay, but it is just as bad across the EU. Companies with more than 500 employees have to comply with rules on sustainability and supply chains that typically run to hundreds of pages. Each one might be well intentioned in itself, but taken together, they add to the cost and complexity of listing a company.

Secondly, crushing taxes and rules across the continent mean there are few new growing companies. The US has an estimated 700 tech unicorns, as start-up companies with a value of more than $1 billion are known, compared with fewer than 200 in the EU, despite the fact that it has a significantly larger population. Companies such as OpenAI and SpaceX have valuations that already run into the hundreds of billions, far larger than anything that is coming out of Europe. In short, Europe does not have nearly enough new companies, the ones that it does create don’t grow quickly enough, and even the handful that do emerge don’t find listing their shares very attractive.

It is hard to see how a single European stock market will do anything to fix any of that. It won’t mean that the listing requirements are less of a burden. In fact, given all the compromises that will be required to make it happen, and all the extra powers that are likely to be handed over to EU officials to regulate it, it will probably make them worse. And it won’t do anything to lighten the taxes or the regulatory overload that now makes it so much harder to start a business in Europe than it is in the US, the Gulf, or much of Asia. All it does is double down on the failed centralising strategy of the last 30 years. It would be far better to have national bourses competing to offer the most attractive forum for listing a company. Having a single stock market won’t make any difference.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

The Ashoka WhiteOak Emerging Markets Trust engages in bottom-up stockpicking to find great businesses at attractive valuations across emerging markets. The trust runs a portfolio that is generally balanced relative to the benchmark to reduce macro risks; stock selection drives performance.

Stocks are selected by a dedicated team of investment professionals and go through an internally developed framework assessing companies’ environmental, social and governance (ESG). The trust focuses on maintaining a well-diversified portfolio rather than making big individual bets on companies, sectors or countries.

Samsung Electronics (Seoul: 005930) is a South Korean leader in technology with strong positions in semiconductors, smartphones, displays and other electronic devices. In the computer-memory market, Samsung remains a major player in both the DRAM and NAND subsectors, with scale and cost advantages built over decades. The surge in demand for AI servers is driving higher memory content, providing structural growth opportunities.

Samsung’s foundry business is expanding through areas such as 3-nanometer process node (3nm): an advanced stage of semiconductor manufacturing where transistors are built in minute sizes. The group is therefore now in a position to capture market share beyond memory.

In smartphones, the company holds a leading position with its Galaxy series and is the pioneer in foldable devices, while its OLED (organic light-emitting diode) display business continues to benefit from increasing penetration into mobile and IT products. Backed by diversified revenue streams, consistent investment in research and development (R&D), and exposure to long-term themes such as AI, digitalisation and electrification, Samsung Electronics is well placed to compound value over the long term.

Growth stocks and the AI boom

Delta Electronics (Taipei: 2308) is the leading switching power supply company globally. It serves a wide range of markets such as telecom base stations, console games, PCs and servers. The industry is characterised by high barriers to entry with know-how built up over decades of experience. Recent growth has been driven by AI servers, which require a far higher power supply than conventional ones. New generations of AI servers have even higher power requirements. Beyond AI, Delta is also present in areas such as factory automation and supplying power trains for electric vehicles, demonstrating management’s ability to identify new opportunities.

Alibaba (NYSE: BABA) is a Chinese company specialising in e-commerce, cloud computing and digital media with a diverse business portfolio both in China and globally. It is the market leader in domestic e-commerce, payments and cloud infrastructure. Alibaba has an enduring competitive advantage thanks to its integrated ecosystem and substantial economies of scale, conferring pricing power and facilitating attractive incremental returns on capital.

In e-commerce, opportunities include rising e-commerce penetration in China and greater opportunities to monetise advertising. Surging demand for AI in China has accelerated cloud migration, bolstering Alibaba’s position as the go-to cloud infrastructure provider. Capable management also makes Alibaba an appealing long-term holding.

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Emerging markets are full of opportunities – not just the mega-caps that dominate headlines, but also the lesser-known innovators quietly shaping the future. At the Mobius Investment Trust, we think these “under-the-radar” firms offer some of the most exciting potential for long-term investors.

Our forward-looking, quality-driven approach is built on proprietary research, which should allow us to access promising opportunities overlooked by the mainstream.

In Asia in particular, the opportunities are compelling. India is benefiting from very rapid digitisation, momentum behind government reforms and a young, middle-class population. Taiwan sits at the heart of supply chains for global technology ranging from semiconductors to next-generation AI infrastructure.

South Korea, meanwhile, combines world-class innovation with ongoing improvements in corporate governance. Together, these markets provide fertile ground for finding companies with sustainable earnings, competitive advantages, and the resilience to navigate changing market dynamics.

With an active share of more than 98%, our portfolio looks very different from the benchmark. This differentiation should allow us to capture growth stories others may miss, while our active-ownership approach means we work hand-in-hand with companies’ managers to help drive improvements in operations, governance and sustainability.

To illustrate our approach, here are three examples of the kinds of companies we aim to invest in: innovative businesses with distinct market positions and exposure to long-term growth trends.

Three emerging market stocks to watch

E Ink (Taipei: 8069) is best known as the company behind the e-paper screens in e-readers such as the Kindle. The group has a near-monopoly in this niche technology. Beyond e-books, it is powering a wave of electronic shelf-labels in retailers, helping stores reduce labour costs and enable dynamic pricing. With only a fraction of the potential market penetrated and thousands of patents protecting its technology, the potential for long-term growth is significant.

CarTrade (Mumbai: CARTRADE) is a leading asset-light online platform for buying and selling vehicles in India, covering everything from cars to two-wheelers. With car ownership still low but rising quickly, and the demand for used cars accelerating, CarTrade benefits from powerful long-term trends. Its move towards high-margin online classified advertisements, including OLX, a global platform, has boosted profitability. Furthermore, the business is debt-free with a strong record of growth.

Park Systems (Seoul: 140860) is a pioneer in atomic-force microscopes, tools that allow semiconductor companies to inspect surfaces at the nanoscale. As chips become smaller and more complex, such precision is essential. Founder-led with deep academic roots, Park Systems has carved out a first-mover advantage and is well-positioned to expand alongside rising global demand for advanced semiconductors.

These are just three examples of the kinds of businesses we focus on: innovative, high-quality companies in dynamic markets, often overlooked by the mainstream, but with the potential to deliver sustainable growth over the long term.

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Andrew Van Sickle: After more than a decade of poor performance, emerging markets (EMs) have staged a comeback this year. The benchmark MSCI EM index has gained more than 20% in US dollar terms. What has brought out the bulls?

Gustavo Medeiros: I think there are three key drivers here. The first is that we had historically low valuations at the start of the year. The second is that over the last 18 months or so, earnings per share have started to climb, helped by healthy growth in several countries and buoyant industries such as AI and semiconductors.

Earnings per share in the MSCI EM Index are now expected to rise from $80 to $96 or so this year. Profit growth has eclipsed that of the MSCI World index over the past four quarters. The third source of support is the weaker US dollar.

Andrew Van Sickle: That usually bodes well for EMs, which are risky assets; a buoyant greenback, along with high US interest rates, bolsters the appeal of safer US assets. Have global investors become disillusioned with America?

Gustavo Medeiros: America has the world’s reserve currency and the deepest capital markets in the world. So the key determinant of global asset allocations will be how the biggest market is performing in absolute and relative terms. High valuations and the tariffs on “liberation day” unnerved investors, reminding them that they needed to diversify away from the US. Structural improvements in developing economies, notably lower inflation, and a shift to pro-market policies post-pandemic, have also helped bolster sentiment. There have been more upgrades than downgrades of EM sovereign debt for some time now, for example.

Meanwhile, although EMs are traditionally comparatively dependent on trade, with large shares of exports as a percentage of GDP, Liberation Day at least tempered the uncertainty. It became clear that tariffs would not fall below 10% but were also unlikely to exceed 30%. On paper Mexico and Vietnam are the most vulnerable, with exports to the US worth 25% of GDP in each case – although a pre-existing Trump-originated deal in the former, and a strategic partnership with the US in the latter, tempers risk. Their stock markets have rallied 40% this year, as have those of Southeast Asia, the next most vulnerable economies.

Andrew Van Sickle: Shall we take a closer look at the structural changes in EMs, a recurring theme for 10 to 15 years now? Everyone used to think of EMs as commodity-exporters heavily geared to global growth, but there’s far more to the story these days.

Gustavo Medeiros: Yes, there is a wide array of supportive factors. In Asia, India and Indonesia are two examples of major economies that have gained momentum through structural reform. Chinese technology, chipmaking in Taiwan and AI are also boosting EM growth. In Latin America, there are many high-quality undervalued companies that have embraced digitalisation and have enormous target markets, yet politics has obstructed the investment opportunity. A series of coming elections are likely to result in a shift towards a more free-market approach, which bodes well for profits and interest from global investors.

Peripheral Europe and central Asia should benefit from a strong boom in capital expenditure on defence, energy and infrastructure coming from Europe, a result of Europe’s attempt to become more self-sufficient. Meanwhile, a round of fiscal consolidation in Ghana, Nigeria and Egypt, following the tight squeeze imposed on Argentina by president Javier Milei, is good news for some of the smaller, more exotic markets.

Andrew Van Sickle: I remember being struck, during the pandemic, by EM central banks being quicker off the mark when it came to squeezing out inflation by raising interest rates than their developed-market counterparts. Overall economic management has improved greatly in EMs.

Gustavo Medeiros: Economic policy has been much better, much more sensible over the past five years in EMs. They raised rates rapidly to counteract the global boost to inflation and avoided quantitative easing; they were mostly restrained when it came to fiscal stimuli, too and quicker to consolidate their deficits. They clearly learnt from the debt crisis of the 1980s and 90s and opted for prudence this time. That leaves them well-positioned for strong and sustainable growth.

Andrew Van Sickle: Let’s zoom in on some of the major economies and markets now, starting with China. A drift towards authoritarianism and the fear that it could turn into another Japan have been two key bearish factors. How would you assess the situation?

Gustavo Medeiros: One simply has to factor in that China has a different political system. The key is the extent to which the private sector is allowed to flourish. And here, the news has improved over the past year. We have become more optimistic recently. Since last autumn, policymakers have been far more willing to support enterprise. It started with measures to backstop the real-estate sector, which has been a major drag on activity. Then the central bank allowed firms to borrow cheaply to buy back their undervalued stocks, accelerating a trend towards buybacks that companies had started themselves. That was a key turning point for us.

The state is also supporting developments in technology, with DeepSeek’s large language model being rapidly adopted in both the public and private sectors. The government hopes to harness AI’s potential to accelerate progress in areas where China is already leading, such as robotics, electric vehicles and cutting-edge biotechnology. The big picture is that the government used to favour particular industries, but now seems to be keen to bolster the entire private sector.

And this is very important. The main reason countries get stuck in the middle-income trap is a failure to innovate, not adverse demographics or other factors. This is clear to Beijing, which is why the leadership keeps on pushing to make their economy more productive, and keeps on pushing to be at the forefront of technological development in many industries. Beijing is also acutely aware that some sectors are oversupplied, with rampant competition rendering margins razor-thin. The banks have fuelled the boom in capital expenditure, and could now take measures to help sector leaders buy up less productive rivals and perhaps rein in lending to struggling mediocrities. The least productive companies should gradually fall by the wayside. These measures are meant to address fears over the Japan-style zombiefication of the economy.

Andrew Van Sickle: Very encouraging. Taiwan is still the second-biggest weighting in the MSCI EM index. That’s due to chip giant TSMC, isn’t it? It’s the AI story.

Gustavo Medeiros: It has the tightest grip on the sector thanks to its ability to produce cutting-edge chips economically, with cutting-edge equipment. It would take years and a vast amount of capital for another company to emulate them, so that provides the company with an enduring competitive advantage; a deep “moat”. While Google could face a threat in search and Apple would struggle if another firm comes up with a gadget that is better integrated with AI than Apple’s range, I don’t see TSMC’s lead being eroded anytime soon.

Andrew Van Sickle: Let’s look at India, which you have described as the most exciting structural-growth story in EMs.

Gustavo Medeiros: No exciting structural story goes in a straight line, and there are now some wrinkles in the case of India. Around 18 months ago, valuations became extremely overpriced, which has been a headwind. And the pace of growth in capital expenditure, having surged in prime minister Narendra Modi’s first term as investment in infrastructure galvanised investment in the private sector, has ebbed.

A bright spot at present is the banking sector. Valuations are reasonable, private banks have done well with the adoption of fintech and have been able to deliver strong growth. Meanwhile, inflation is under control and short-term interest rates have been cut. The interest-rate curve is thus steepening, which is good news for banks’ net-interest margins. President Donald Trump’s tariffs are another headwind for now, although the economy is relatively insulated from global trade, given the large consumer sector.

The long-term outlook is still favourable, however, given the demographics, the dynamic private sector (the service sector will be able to exploit AI) and the gradual evolution of a manufacturing sector in recent years. Apple, for example, have said they will make all iPhones sold in the US in India by 2030.

Andrew Van Sickle: Finally, you have described Indonesia as a structural-reform story trading at crisis-level valuations.

Gustavo Medeiros: A year ago, power was transferred to president Prabowo. He is market reform-orientated, like his predecessor Jokowi, but investors appear to have been spooked by two policies. One was free school meals. This is sensible, but it took up a large share of the budget in a traditionally low-tax, small-government economy.

Then he consolidated state-owned companies into a sovereign wealth fund in order to gather their dividends together and allocate the money to the economy more effectively. Again, sensible enough, but investors were nervous because of the recent scandal surrounding Malaysia’s 1MDB sovereign wealth fund. Just as investors were starting to digest the uncertainties, the protests on the streets of Jakarta led to the exit of experienced finance minister Sri Mulyani. She was seen as one of the safest pair of hands across EMs, so even though her successor is likely to keep her policies unchanged, her exit was another blow to confidence.

Still, the broad pro-market direction is unchanged, and the long-term structural-growth story remains compelling. Indonesia has lots of metals that will be crucial to the global energy transition, while demographics are also a tailwind.

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The emerging-market bull isn’t back quite yet, but investors are seriously considering whether to set one running. Despite notable success stories such as India, when taken as a whole, emerging markets (EMs) have had a dispiriting 15 years as surging US stocks left fund managers with little reason to look elsewhere. Between 2009 and 2024, US equities returned an annualised 14.6% in dollar terms, almost double the 7.4% returns for emerging equities over the same period, says Jeff Sommer in The New York Times.

Yet Donald Trump’s tariff chaos has flipped the script. EMs returned a formidable 14.9% in the first half of 2025, compared with 5.8% for American shares. A brief, but frightening meltdown in US bond markets this spring is driving a reassessment of which countries are the real banana republics. The usual pitch for EMs is that they offer high growth potential, but with greater risk. Yet calculations from MSCI show that in foreign-currency terms, US public markets were actually more volatile than the average emerging market during the first half of 2025 (not news to anyone who checked their share portfolio during April’s fierce market crash).

Emerging markets gain credibility

Trump’s America isn’t the only developed nation coming in for scrutiny. “Post-pandemic, many EM central banks were quicker to raise rates than their developed-market counterparts,” says Devan Kaloo, global head of equities at Aberdeen Investments. “By contrast, several developed market central banks have seen their credibility erode, partly due to delayed policy responses and increasingly strained national balance sheets.” There has thus been a shift in “relative credibility”, with incremental improvements for EMs “versus continued erosion” in some developed markets.

The last EM bull market came during the 2000s as Chinese growth powered up global commodity markets. Between 2001 and the end of 2009, the MSCI EM index climbed nearly 200%, compared with a miserable 4% in the developed world (courtesy of the dotcom and subprime crashes). A straightforward repeat of that golden age, with a rising Chinese tide lifting most EM boats, may not be on the cards again. The EM grouping has grown so diverse that differential performance during the next bull run seems inevitable. East Asian tech leaders, Latin American copper miners and Middle Eastern energy plays are unlikely to all enjoy a simultaneous boom.

If anything ties EMs together today, it is the financial logic that sets them up as a foil to US capital markets. When doubt sets in on Wall Street, EM funds are one of the natural outlets for redirected flows, in rather the same way that a local pub might enjoy an uptick in custom when a patron’s marriage starts to fail.

Historically, a fairly reliable rule is that EM assets will rise when the dollar falls. That correlation was apparently driven by simple financial logic: a cheaper dollar meant cheaper financing costs for EM sovereigns and companies. The growth and earnings outlook thus improved mechanically. Yet today firms in the developing world are increasingly able to borrow in their own currencies rather than taking on the currency risk of greenbacks.

You might have expected the inverse dollar-to-EM correlation to break down as a result, but it hasn’t, suggesting that global capital flows are a bigger factor than balance-sheet effects. Buying EMs may thus be one roundabout way of shorting an overvalued dollar.

Emerging market growth

For now, this year’s EM bounce might be more a symptom of global fund managers trimming their US exposure than the result of any sudden enthusiasm for South African miners or Polish energy plays. In the long term, a fresh EM bull market can’t run on fatigue with America alone.

The classic growth themes – a rising middle class, demographics, rapid economic growth – are still present, but they are no longer a given everywhere. Populations in East Asia are ageing, while much of Latin America stews in the middle-income trap. The need to pick winners and avoid duds makes a compelling case for using actively managed funds.

Kaloo highlights “three key structural developments: rising domestic consumption, technology as a platform, and the global shift toward electrification”. To play the first two, he points to Tencent, the operator of Chinese “super app” WeChat. “Tencent combines the strengths of global tech giants such as Spotify, Meta and Sony. Yet it trades at a significantly lower valuation, despite its strong exposure to some of the world’s fastest-growing consumer markets.” For electrification, he likes Kazakhstan’s Kazatomprom, which is the world’s largest uranium producer and stands to gain as “the pace of demand for energy is growing rapidly around the world”.

Another reason to favour funds is because the value created in emerging economies isn’t always captured on local exchanges. Fadrique Balmaseda, investment adviser to the Ashoka WhiteOak Emerging Markets Trust (LSE: AWEM) says that as of June this year, 11.6% of the portfolio is actually in developed-market shares. For example, “approximately a third of revenues” at LVMH and Hermès comes from Chinese luxury consumers, yet the shares are listed in Paris.

To secure broad exposure, there is the Fidelity Emerging Markets Limited Trust (LSE: FEML), which is up 21.5% this year and carries a 0.81% ongoing charge, and the Templeton Emerging Markets Investment Trust (LSE: TEM), which is up 21% and carries a 1.09% ongoing charge. Reflecting the underlying EM index, both are currently heavily invested in Asian tech plays such as Taiwan-based chipmaker TSMC.

Finally, some of the most intriguing growth stories in the developing world are not taking place in emerging markets at all, but in the even more peripheral “frontier” category. The BlackRock Frontiers Investment Trust (LSE: BRFI) offers exposure, with a notable weighting towards the Gulf states and Turkey.

Vietnam: a roaring – and cheap – Asian tiger

GDP per capita in the Southeast Asian tiger has risen more than fivefold since the mid-2000s, driven by an export-led manufacturing strategy. But Donald Trump’s re-election cast grave doubt on the nation’s growth plans. Vietnam has the third-largest trade surplus with the US of any country. When Trump threatened tariffs of 46% in April, local shares reacted with their worst day in 20 years. Economists made dire predictions of GDP shrinking as much as 4% – a severe recession.

Thankfully, last month, Hanoi pulled off a much better deal. The new 20% tariff (with the threat of 40% on Chinese “trans-shipments”) is hardly welcome, but it isn’t at a level that puts local factories out of the game. Most importantly, with its neighbours slapped with similar rates, there is little reason to think that Vietnam’s status as the region’s up-and-coming manufacturing hub is in peril. The local VN-index has rallied 17% since the US deal was announced on 2 July, and has gained 33% in a year. Concern has shifted to whether an “intense” bout of buying by local punters is sustainable, says Nguyen Kieu Giang on Bloomberg. Retail traders account for more than 80% of local market value, partly representing the absence of large institutional investors in a market that is still classified as “frontier” by index providers FTSE Russell and MSCI. Still, on 11.1 times forward earnings, Vietnam remains notably cheap compared with most regional peers.

And the holy grail might be drawing into view. “There are clear signals that an upgrade in FTSE Russell’s index hierarchy could be announced in September 2025, with official inclusion as early as March 2026,” says a recent report from Dragon Capital. That could unleash hundreds of millions of dollars in passive inflows from investors who track the EM index, and several billion from active funds. It could also pave the way for an even more game-changing upgrade to the MSCI EM index. Growth dynamics show no signs of slowing. “FDI, public investment and corporate earnings growth have all surprised on the upside, leading the government to revise its growth target from 8% to 8.5%”, says Thuy Anh Nguyen, director at Dragon Capital. Dragon Capital’s Vietnam Enterprise Investments Limited (LSE: VEIL) fund is tapping into the country’s expanding middle class through electronics retailer Mobile World Group (MWG). With grocery subsidiary Bach Hoa Xanh, MWG is capturing “the shift in consumer behaviour away from wet markets to convenient modern stores”.

VEIL has been London’s top-performing Vietnam-focused trust this year. Dynam Capital’s Vietnam Holding (LSE: VNH), which has more of a tilt towards smaller stocks, has returned an impressive 169% in five years. VinaCapital’s Vietnam Opportunity Fund (LSE: VOF) takes in a broader range of assets, including private equity.

India takes a breather

While Vietnam enjoys clarity over tariffs, India is still caught in the fog of the trade war. The White House has slapped the world’s most populous nation with eye-watering 50% tariffs, with half that total a punishment for buying Russian oil, and the other half in retaliation for New Delhi’s $45.7 billion goods surplus with Washington. A contrarian might spot a buying opportunity. Trump’s tariff bark tends to be worse than his bite. Some sort of deal seems likely to materialise once the sabre-rattling is done. Tariffs are a real irritant, complicating India’s hopes of becoming Asia’s next electronics-manufacturing powerhouse. But a vast internal economy means that only about 2% of GDP is derived from US exports. Trade battles with Washington simply aren’t the existential economic question for New Delhi that they are for Hanoi.

The real problem is that India’s stock market is losing steam. On a forward price/earnings (p/e) ratio of 22, Indian equities trade at a steep premium to the EM average of 13. Indian blue chips generally deserve these premium ratings. India is a tough place to do business, so the firms that rise to the top are usually very well managed.

Moreover, GDP is expanding at 6.5% a year. But high valuations are vulnerable when earnings disappoint, and that is what has happened recently. As Bharath Rajeswaran and Vivek Kumar M note in Reuters, earnings growth has been in single digits for five consecutive quarters, below the 15%-25% pace that got the current bull market going in 2020. There are suspicions that only determined local retail buying is keeping things afloat.

The local BSE Sensex has crawled 2.5% higher this year, lagging regional rivals. In a curious way, Indian shares now resemble those in America: a market with solid long-term prospects, excellent companies and overenthusiastic retail buyers that is losing steam against a backdrop of bad news and elevated valuations. And rather like America, long-term investors cannot afford to sit things out, even if the short-term set-up is less than encouraging.

The pound’s 11% rally against the rupee this year has left most London-listed India trusts underwater for the year to date. Abrdn New India Investment Trust (LSE: ANII) has lagged during India’s equity boom, but its conservative focus on large-cap, high-quality shares should provide some protection during periods of softness. The small and mid cap India Capital Growth Fund (LSE: IGC) has been a top performer, delivering a 171% gain over the past five years. India’s 5,000-plus universe of listed firms is a stern test of stockpicking ability, and with an average annual return of 15.3% stretching back to 2005, the team has a proven record.

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There are two obvious points to make about emerging markets at a time like this. One is that the idea of emerging markets as a single type of investment feels nonsensical and has done for a long time. The emerging-market universe covers a huge range of economies that have far less in common than the developed-market universe, which is already diverse enough. The other is that – regardless of the above argument – one rule still holds: when the US dollar goes down, emerging markets are much more likely to go up.

We have seen the same pattern playing out again this year. The MSCI USA is up by about 7% since the beginning of January, while the MSCI Emerging Markets is up by almost 16% in US dollar terms. Currency moves play a part here, but they are not the whole story: the index is up by almost 13% in local currency terms. This does not mean that every emerging market is doing well. India is notably weak. So is most of Southeast Asia. The mainland China A share market is unimpressive. Still, Hong Kong-listed shares, Korea, Eastern Europe, most of Latin America and the Middle East (excluding Saudi Arabia) have all been fair to outstanding.

Will emerging markets outperform others?

The natural explanation for why a weaker dollar and stronger emerging markets go together is down to capital flows. The dollar is weaker because money is flowing out of US assets (or at least no longer flowing into them) and instead going elsewhere. That money is not only heading into emerging markets, but economies that do not have deep pools of domestic institutional investors are very sensitive to foreign flows and so small shifts can make quite a difference.

The question then is whether this short-term rally can turn into a longer-term bull market. Certainly, the MSCI Emerging Markets looks cheap on a forward price/earnings ratio of about 13. The differential between this and the USA (on a forward p/e of around 23) is far wider than it was a decade ago. The caveat here is that emerging markets looked even cheaper back then (when the forward p/e was about 11). Yet subsequent returns were disappointing, which was in part because earnings growth was weak, though emerging economies grew faster (on average) than developed economies.

This will need to change for the rally to run – and there are signs that it may. Earnings per share for the MSCI Emerging Markets rose 10% last year and JP Morgan forecasts are for a further acceleration to 17% this year (although in this environment, forecasts should be treated as even more uncertain than usual). If so, this should turn into a virtuous circle: better results from emerging markets encourage more investment, more spending and lead to more growth. Note too that even though emerging markets have had a strong 2025 so far, they have actually lagged behind European markets. That feels natural at this stage, since pessimism about Europe has been extreme. However, if the rotation away from the US continues, one would expect them to ultimately outperform.

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Matthew Partridge: In your new book, The Economic Consequences of Mr Trump: What the Trade War Means for the World, you posit that president Donald Trump’s threats over tariffs are real, rather than a bluff, and represent a major threat to both the US and world economies.

Philip Coggan: Yes. Many investors seem to be assuming that Trump will ultimately back down from his threats of swingeing tariffs; markets have recovered from the collapse that took place in April when they were first announced. However, while there is still a chance that this could be correct, this attitude seems complacent.

Ironically, the assumption that Trump is bluffing may end up increasing the risk of tariffs, both because it means that Trump won’t get the concessions that he’s looking for, and because he thinks that the muted market reaction means they aren’t that economically damaging.

Matthew Partridge: What are Trump’s aims, then?

Philip Coggan: In my book, I argue that trying to understand Trump is like trying to nail jelly to the wall. However, I do think that he genuinely doesn’t understand economics and thinks that America’s trade deficit is a sign that America is being “robbed” – the type of mercantilism that was debunked by Adam Smith 250 years ago. He also thinks that returning manufacturing jobs to the United States will help boost his public support.

Matthew Partridge: There has been a wide range of reaction to Trump’s tariffs, from China simply imposing their own tariffs in response to prime minister Keir Starmer agreeing to cut the UK’s import levies. Which road do you see the EU, Canada and Japan going down?

Philip Coggan: I think you can understand the UK and Chinese differences in terms of the strength of their respective negotiating positions. China is a big economy that produces things the US really wants, like the rare-earth materials, as well as cheap goods that help keep down prices.

As a result, China can cause serious pain for the US economy if it wants to. The UK, however, is not only a smaller economy, but depends on the US for its defence. This makes Britain’s negotiating position much weaker; hence the more conciliatory response.

The EU, while economically bigger than the UK, is in a similarly weak position. Firstly, the need to get all 27 countries to agree to any response makes it harder to impose any major across-the-board tariffs, especially when you have countries like Hungary, whose leaders don’t want to antagonise Trump. As with the UK, there is also the security angle. That explains why the EU folded and agreed to what looks like a one-sided deal.

The Japanese faced the problem that many of Trump’s demands didn’t make sense, or were based on things that don’t exist. Take the “bowling-ball test” (the myth that Japanese regulators require imported cars to be able to withstand the impact of a bowling ball dropped from a certain height). The Japanese agreed a deal to protect their carmakers. It is worth noting that importers of Japanese cars will face a 15% tariff but US car producers will have to pay 50% tariffs on raw materials like steel and aluminium.

Furthermore, while both the EU and Japan made vague promises to invest hundreds of billions in the US, there is no sign of legally binding texts, and such promises have been unfulfilled in the past. They may be hoping to wait out Trump’s term before the money becomes due.

Matthew Partridge: If investors are too complacent, what will it take to convince them to take Trump’s threats seriously?

Philip Coggan: One obvious trigger point is the deadline that Trump has imposed at the start of August for concessions from other countries. So, if that deadline passes and Trump decides to go through with the planned tariff hikes, then markets will see that we’re looking at something more than just a 10% tariff on all goods that are imported to the US. Another trigger point could be if he follows through on rumours that he will impose huge tariffs on imported drugs.

Who will suffer most from tariffs?

Matthew Partridge: Are the big losers from Trump’s tariffs likely to be large global firms or smaller domestic firms?

Philip Coggan: It certainly makes sense that big global multinationals will be much more negatively affected than those producing and sourcing inside the US. However, US firms that depend on imported raw materials will also feel some pain, as most larger companies have global supply chains, even if they consider themselves primarily domestic.

Nearly half of all US imports involve either raw materials or components. So, if you depend on imported steel, copper or aluminium, your costs are going to go up quite a lot, which will hurt your profits.

Matthew Partridge: Outside the US, which countries are set to suffer?

Philip Coggan: Well, it depends on how all the tariffs settle down, but I think the biggest losers are going to be those in emerging markets, which have been suppliers to the US in sectors like apparel. You can expect countries like Vietnam, Cambodia and Laos to struggle to find alternative markets for their goods.

The EU is another big loser, and could see at least 1% shaved off its GDP growth, which given the bloc’s mediocre economic growth performance could be quite serious. After all, even with relatively low tariffs, the UK economy is not really growing.

Matthew Partridge: Could Trump’s tariffs cause a global recession?

Philip Coggan: I don’t see the main threat as being some sort of immediate global recession, because these things take time to feed through. But we are already seeing companies cutting, or even completely pausing, their international investment, because they don’t know what the final tariff rate will be.

However, even if there isn’t a crash, tariffs and protectionism make the global economy less efficient at a time when it is already growing rather slowly. It’s important to realise that a lot of the growth during the last 15 years came from China, which is finally slowing thanks to its ageing population. So rather than cause some big implosion, Trump’s tariffs could just speed up the process of global economic entropy.

Will tariffs be a lasting legacy?

Matthew Partridge: Assuming that Trump leaves office in January 2029 (or earlier), do you think his protectionist legacy will endure, or is he just an aberration?

Philip Coggan: Trump’s populism is certainly a very long way away from the free-trade Republicanism of George H.W. Bush, which now seems to be extinct. What’s more, the Democrats are pretty protectionist themselves. During his four years in office, Biden kept most of the Trump tariffs and imposed export restrictions on chips to China (restrictions that Trump has ironically loosened).

So, while you should see a bit more “normality” under a Democratic administration – as they are unlikely to impose blanket tariffs that cover America’s traditional allies or even remote islands populated by penguins in the Antarctic – they may not be as different as you might think.

Matthew Partridge: Are Trump’s trade policies the only thing that could damage the US economy?

Philip Coggan: The tax cuts and spending contained in his so-called Big Beautiful Bill certainly undermines the US fiscal position, which will inevitably lead to both higher interest rates and a weaker dollar.

In the very long run, it could also imperil the greenback’s position as a global reserve currency (the currency in which most global trade takes place), though this may take time, as there isn’t an obvious alternative at present.

More generally, his economic policies, such as cutting federal research budgets and launching an attack on universities, are destroying everything that is great about the US. China is catching up quickly with the US on research spending, and Chinese academics are going home rather than staying in America.

Moreover, a record number of American academics are looking to work abroad.

And these are not things that have a one- or two-quarter impact on economic growth, but could seriously reduce it five or so years down the line. Note that the development of the new generation of weight-loss drugs, which are now generating tens of billions in sales, came from investigating the Gila monster (a type of lizard), which is exactly the sort of basic research that Trump is slashing.

Matthew Partridge: On a more optimistic note, if the US does remain protectionist, could other countries take up the mantle of promoting global free trade?

Philip Coggan: Well, I very much hope they do. The US represents less than 10%-15% of global trade (depending on how you measure it), so if you can keep the other 85%-90% going under WTO rules, then that would reduce the impact. The negotiations over the trade deal between the EU and Latin America’s Mercosur is a really positive sign.

However, since the past 80 years of trade liberalisation has been driven mainly by the US, the withdrawal of the US (and its soft power) from the world stage is very worrying. When the US retreated into isolationism after World War I, it took only 10 years for the global order to start to collapse.

The Economic Consequences of Mr Trump: What the Trade War Means for the World is published by Profile Books (£6.99).

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Emerging markets – and notably Asian economies – are still expected to grow much faster than developed economies over the next few years, even factoring in the impact of tariffs.

India is the prime example. Its GDP is expected to increase by 6.2% in 2025 and by 6.3% in 2026, according to the IMF, compared to just 1.4% and 1.5% for advanced economies. China is forecast to grow at 4% for the next two years.

Yet finding opportunities in these markets requires an edge. Most Asian markets remain inefficient, so an active approach is necessary.

An active edge

The £460 million Pacific Assets Trust (LSE: PAC) has been investing across the Asia Pacific region (excluding Japan, Australia and New Zealand) since 1985. Stewart Investors took over the portfolio in 2010, building on an established record. Over that time, the trust has achieved a net asset value (NAV) return of 270%, compared with 150% for the MSCI AC Asia ex Japan index and the peer group average of 243%.

In Asia, investors must be cautious when deploying their money, says Doug Ledingham, one of the trust’s co-managers, who has been with Stewart Investors since 2013. “If you look at the index... you’re potentially handing your money to poorly run state-owned companies, you’re handing your money to entrepreneurs and families that perhaps don’t have your best interests at heart.”

That’s particularly true of China, which accounts for around a third of the trust’s benchmark. “The vast majority of companies in China are state-owned,” he says. For that reason, investments tend to be determined by the state rather than their profitability.

Favouring India

China makes up around 17% of Pacific Assets Trust’s portfolio, while India is the largest country-specific allocation at just under 35%. That’s been the case since Stewart took over and is a “function of the depth of opportunities that we find in India," Ledingham says. “It’s where there’s the greatest opportunity to find great companies, great families.”

It’s that latter point that helps the trust stand out in a crowded market. Ledingham says the only way the trust can be sure its companies are focused on the long term is to stick with family-owned, generational companies. The top-ten positions in the portfolio have been held for an average of nine years, with two-thirds of the portfolio being held for at least five years.

Mahindra & Mahindra, one of India’s largest car makers, is the biggest holding in the portfolio at 5%. Compare that with the index, which has semiconductor manufacturer TSMC as the largest holding, with a weight of nearly 10%, and you can see how the trust differentiates itself.

Mahindra & Mahindra has a “wonderful combination of long-term ownership in the family [and] a professional CEO. A really, really powerful combination”, says Ledingham. Over the past five years, the stock has returned 760%, compared with 213% for TSMC. Since 2010, the stock has returned 1,200%.

No knee-jerk changes

While the managers are monitoring the impact that tariffs will have, Ledingham says they are not making any knee-jerk changes to the portfolio. “In periods of market volatility, we try not to touch the portfolio too much, and our focus is really on spending time with our companies, speaking to the people behind them and reiterating what they’re thinking.”

Instability makes it all the more important to be invested alongside “trustworthy families and entrepreneurs that have their own money invested alongside yours” who can look past short-term volatility. With the trust trading at a discount to NAV of just shy of 12%, investors can buy some of Asia’s most remarkable growth stories at a discount.

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Investors are often drawn to emerging markets for their potential rapid growth, rising consumer wealth, and dynamic companies. However, investing in these markets is complex and requires careful evaluation of each region’s unique challenges and opportunities. The MSCI Emerging Markets (EM) index spans over 1,300 companies across 24 countries, ranging from global technology leaders to smaller niche firms.

Technology has emerged as a dominant sector, now accounting for nearly a quarter of the index. The shift away from traditional industries, such as commodities and cyclicals, toward tech and tech-enabled services is reshaping the emerging-market landscape. Identifying companies that are well-positioned to capitalise on these changes, particularly in AI, digital services, and e-commerce, will be key for investors looking to capture long-term growth in emerging markets.

India and China, the two largest markets, present starkly different investment landscapes. India’s stock market has been buoyed by strong economic growth and investors’ optimism, though some top-performing stocks are now highly priced.

Since the turn of the year, some of this excess pricing has declined, highlighting better valued opportunities. By contrast, China’s economy is slower, although gradually recovering, but consumer confidence remains weak, and regulatory uncertainty is affecting certain sectors. This divergence illustrates why a one-size-fits-all approach to emerging markets is ineffective.

This is where active management plays a critical role in identifying the right opportunities, focusing on companies with strong growth potential, solid fundamentals, and attractive valuations, as demonstrated by the following three stock picks that illustrate our strategic approach.

Driving the development of AI

As the world’s largest contract chipmaker, Taiwan Semiconductor Manufacturing Co (Taipei: 2330) is a crucial player in the global technology supply chain. As the dominant force in advanced semiconductor manufacturing, it supplies the chips that underpin AI development, 5G networks and high-performance computing, making it integral to the digital economy.

The growing reliance on AI, cloud computing, and next-generation mobile networks has only heightened the demand for cutting-edge semiconductors. With its technological expertise and market position, TSMC remains a key player in this evolving landscape.

India’s largest private-sector lender, HDFC Bank (Mumbai: HDFCBANK) is a standout in one of the world’s fastest-growing economies. With a vast customer base and a strong presence in retail and corporate lending, it has delivered solid loan growth, high profitability and a resilient balance sheet. As financial services expand to serve India’s growing middle class, HDFC Bank benefits from increasing demand for digital payments, consumer credit and wealth management. Its market leadership, prudent risk management, and focus on technological advancements make it a compelling long-term investment.

MercadoLibre (Nasdaq: MELI) is Latin America’s largest e-commerce and fintech platform, often compared with a combination of Amazon, PayPal and Shopify. With e-commerce penetration still relatively low in the region, its online retail business continues to experience strong growth. More importantly, MercadoLibre’s fintech arm, MercadoPago, is transforming financial services in regions with limited traditional banking infrastructure. MercadoPago not only facilitates e-commerce transactions but also provides credit to underbanked populations, enabling economic participation for millions.

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India’s “loyal retail traders” are being tested like never before, says Chiranjivi Chakraborty on Bloomberg. A long stock market boom ran into trouble in September, when an unanticipated economic slowdown and analysts’ downgrades to companies’ earnings forecasts knocked India’s richly priced shares – $1.2 trillion has since been wiped off valuations. Global funds withdrew an estimated $26 billion between October and February.

Local investors had kept things ticking along, but even they now appear to be losing enthusiasm, with inflows into domestic mutual funds down 30% since a record high in October. India has been an emerging-market darling in recent years, with the BSE Sensex Index surging 187% between the March 2020 Covid trough and September 2024. Yet, since then, the index has slipped more than 10%.

Many small investors in the Mumbai bourse only got into investing during the Covid-era boom, making this their first market slump, says Veena Venugopal in the Financial Times. Local fund managers are feeling pessimistic, with no immediate “triggers” for a recovery in view and plenty of risk as Donald Trump prepares to unveil new “global tariffs”. “India’s loss is China’s gain.” Global money managers have been distracted by Chinese technology, with Hong Kong’s Hang Seng Tech Index rallying 25% this year amid the DeepSeek mania.

India’s NSE Nifty 50 suffered five straight months of losses through February, its worst losing streak since 1996, says Reuters. Smaller stocks have been especially hard hit, with the Nifty small-cap 100 index dropping 22% from September’s record high.

IT is the latest target, with foreign portfolio investors selling $3.5 billion worth of shares during the first half of March. A large chunk of Indian tech revenue comes from the US, leaving the sector exposed to Trump’s tariff whims.

Has India hit bottom?

By global standards, Indian stocks remain among the world’s priciest, says Craig Mellow in Barron’s. But recent losses arguably constitute a “healthy correction”, with price/earnings (p/e) ratios back to historical averages. State spending “sputtered” after elections last year but shows signs of “picking up again”.

India’s exports are dominated not by goods but by services, which do not attract as much of Trump’s ire. And with a median age of 28 (compared with 38 in China) a demographic dividend is coming through.

Indeed, the BSE Sensex has staged a 6.5% rally since the start of the month, but buying in still requires bravery. “The last shoe to drop will be when retail investors capitulate and sell,” says Arthur Budaghyan of BCA Research. He predicts “at least another 15% drawdown in Indian stocks” before the bottom is in.

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Fidelity Emerging Markets Limited (FEML) makes use of an extended toolkit: the ability to increase gross exposure; to take both long and short positions in stocks; and to generate additional income and manage risk through options.

By scouring the breadth of the market-cap spectrum for ideas and making use of our excellent team of global analysts, we identify overlooked companies across regions and industries.

Here are three stocks we are especially excited about.

Emerging markets: A Latin American bargain

Inter & Co (Nasdaq: INTR) is the holding company for Banco Inter, a Brazilian digital bank and super-app that has started to gain significant scale. With room for further fragmentation across retail banking in Brazil, banks such as Inter, which have strong funding dynamics and have not yet reached their maximum potential market share, stand to benefit. Trading on a price-to-book-value ratio of around 1.3, it’s an example of a great business in Latin America where the share price has been depressed by weak sentiment.

While the fiscal and interest-rate backdrop in Brazil has deteriorated, the broader economic picture is more positive, with unemployment at decade lows, GDP growth robust and credit quality positive. The impact that higher rates will have on Inter’s fundamentals is limited. We expect net interest margins to keep expanding and the cost of risk to remain benign given a tight labour market. All this creates an auspicious backdrop for Inter, which enjoys a strong fundamental position with a great outlook for future profitability.

Buenaventura (NYSE: BVN) is a Peruvian gold and copper miner. The share price has suffered as local pension funds have sold equities to fund large outflows following reforms that allow investors to access their pensions early. However, this obscures a positive fundamental backdrop for the group, which has delivered strong operational performance and upgraded guidance, something that is relatively rare in mining.

We also think that the backdrop for both commodities that Buenaventura mines is very strong. Copper is a particular area of conviction for us, with attractive supply-demand dynamics, underpinned by the copper-intensive energy transition and a very muted supply outlook. Buenaventura is one of the few mining companies with a strong pipeline of development assets, so they can increase copper production into a rising supply/demand deficit. We also think the outlook for gold is attractive. It should benefit as central banks continue to move their foreign-exchange reserves into gold over the next few decades. We see Buenaventura as a high-quality producer that should benefit from a constructive outlook for both metals.

Full speed ahead

Full Truck Alliance (NYSE: YMM) is a digital truck broker in China. The Chinese trucking industry is fragmented, and most truckers operate as independent businesses, meaning FTA should do well as it gains share from offline truck brokers by offering lower logistics costs and efficiencies.

We also see solid potential for FTA’s take rate (the proportion of revenue it retains from the transactions it facilitates) to expand, given this is currently low relative to that of the offline model, and commission is a small expense for truckers.

With 25% of FTA’s market value in cash, we see scope for the firm to raise its payouts to shareholders in the years ahead. The company is trading on a price/ earnings (p/e) ratio of 18, an attractive multiple for an undermonetised business with a monopoly position.

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India is often considered the most attractive long-term investment opportunity within emerging markets, and arguably among all global markets. With a powerful demographic story, strong institutions, a vibrant democracy, market-friendly policies and an entrepreneurial business culture, India presents immense growth potential. We seek to capture this by investing in “emerging leaders”: companies well-positioned to thrive in a world of rapid change and disruption – disruption that is especially evident in emerging markets.

These emerging leaders are firms with the resources, capabilities and industry positioning to generate outsized economic returns amid rapid transformation within their sectors. They can be either dominant industry leaders adapting to change, or challengers disrupting their industries. They operate in attractive industry structures with strong competitive advantages but crucially have the vision and financial resources to invest for future growth. Unique assets, technological leadership and the difficulty customers face in switching to other suppliers will allow these firms to defend their position while embracing new technologies enables them to secure digital leadership.

Indian companies moving up a gear

ASK Automotive (Mumbai: ASKAUTOLTD) is India’s leading two-wheeler braking system manufacturer, with a 50% market share and long-term partnerships with the top six industry players. The two-wheeler market is rebounding after a downturn, with expected growth of 10%-15% per year for the rest of the decade. ASK has historically outpaced industry growth by increasing market share and expanding its product range.

Given the critical nature of braking systems, barriers to entry in the sector are high, requiring proprietary materials and advanced technology. ASK is also well-positioned for electric vehicles (EVs), which require more aluminium, boosting its growth potential. Strong margins and economies of scale are expected to lift returns on capital from 20%-25% as new capacity ramps up.

Zomato (Mumbai: ZOMATO) is India’s leading food-delivery platform and a major beneficiary of rising digital adoption, urbanisation, and disposable incomes. It has expanded into “quick commerce” (fast delivery of groceries and essentials) through its acquisition of Blinkit, capitalising on a booming market. India’s $600 billion food and grocery sector is dominated by small vendors, creating a massive opportunity for Zomato. The company is rapidly entering smaller cities, with new stores breaking even in just two to three months. While competition is increasing, the potential market is expanding, making growth prospects compelling.

Max Healthcare (Mumbai: MAXHEALTH) is one of India’s top private hospital networks. Despite a population of 1.4 billion, India has fewer than 80,000 private hospital beds, driving demand for quality healthcare. Max is growing through hospital expansions and strategic acquisitions, with plans to increase beds from 6,000 to 8,500 within four years. It dominates high-income regions, such as Delhi and Mumbai, boasting the highest revenue per bed in the industry. With a strong focus on specialised treatments (oncology, cardiology, neurology), Max delivers 30%+ return on capital, with further upside as demand for premium healthcare rises.

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Emerging-market (EM) equities have struggled to get the attention of investors over the past five years. Since 2020, the MSCI Emerging Markets Index has underperformed the MSCI Developed Market Index by a total of 45%, according to JPMorgan.

Virtually all of this gap can be attributed to the outperformance of the US and the underperformance of China. Chinese equities comprise 28% of the MSCI EM index, followed by Taiwan at 20%, although half of that is accounted for by Taiwan Semiconductor, which has a 10.5% weighting. TSMC is by far the largest holding and is more than twice the size of the next largest, China’s Tencent at 4.5% of the index.

Emerging-market stocks are cheap

The outperformance of the US equity market compared with the rest of the world since 2020 has driven relative EM valuations to multi-decade lows. The MSCI Emerging Market’s forward price/earnings (p/e) ratio now stands at a 40% discount to developed-market peers, the biggest differential since 2006. On a price-to-book value basis, EMs are trading at a gap to developed markets not seen since 2001. That is just the headline figure; the valuation dispersion among EM equities is enormous.

According to JPMorgan’s analysis, Chile, Turkey, Poland, Brazil and Mexico are all trading at discounts of 30% or more to their two-decade average on a forward p/e basis. Korea and South Africa are trading at discounts of 20% or more. On the other hand, Taiwan, Thailand and India are the most overvalued markets. These markets are trading at premiums to their 20-year average of between 21% to 28% on a forward p/e basis, although for Taiwan, the figures are skewed by TSMC.

Despite these low valuations, emerging economies as a group are expected to grow faster than their larger, developed peers in 2025. Analysis conducted by specialist EM fund manager Ashmore suggests they will grow 3.9% as a group in 2025, more than double the 1.5% predicted for developed markets.

Asian economies will lead the charge, with growth of 4.4% pencilled in for 2025. Outside Asia, the Middle Eastern oil-power economies are expected to underpin growth in the Middle East/Africa region to 3.6% in 2025. Eastern European economies are expected to chalk up growth of 3%.

These figures are subject to a high degree of uncertainty, as we have yet to see how Donald Trump’s tariffs on key US trading partners influence trade. Earlier this month Trump imposed tariffs of 25% on all goods from Canada and Mexico (excluding oil from Canada, which will be hit with a tariff of 10%) and tariffs of 10% on China. At the time of writing, however, he has paused the levies on Canada and Mexico by a month.

Mexico has the most to lose. Exports to the US accounted for 25.2% of its GDP as of March 2024, making it the most exposed to any protectionist trade policies. China is actually one of the least exposed countries. According to Ashmore, just 2.7% of China’s GDP is tied to US exports. That’s not to say tariffs won’t have much of an impact on China’s economy. Any trade restrictions are likely to be deflationary and could drive the country’s policymakers to monetary stimulus or fiscal support to cushion the economic blow. The spillover effects of these policies could be a net positive for other emerging markets if the country unleashes its massive multi-trillion dollar fiscal surplus to save the economy.

The ultimate impact of a global trade war is difficult to determine, but that doesn’t mean investors should give up on emerging markets. In fact, tariffs are likely to hit the pockets of US consumers more than anything else, and in recent years many countries have made huge progress in shifting their supply chains to deal with more protectionist policies.

In addition, there is more to the world of emerging markets than the traditional plays such as China, Mexico and Taiwan. Regions such as Poland, Turkey and South Africa are likely to escape the worst of the trade war and could even benefit as supply chains are rerouted. They also look incredibly cheap by historical standards.

These factors, coupled with the fact that US equities are currently priced for a Goldilocks environment, imply that adding historically cheap EM stocks to a portfolio and reducing exposure to expensive US equities could make sense.

Are active funds better for investing in emerging markets?

When it comes to investing in EMs, active funds are usually the better choice. While passive funds are usually the best way for investors to build exposure to global markets, EMs tend to be less efficient, so there are more opportunities for outperformance with active fund management.

One example is the Ashoka WhiteOak Emerging Markets Trust (LSE: AWEM), which makes use of a team of in-country experts to pick stocks, which has helped it outperform. The trust offers an annual redemption facility for investors. The nature of EMs also means that investment trusts are often the best vehicle for investors to build exposure. The closed-ended nature of trusts means they can invest in illiquid securities, and EM exchanges are often far less liquid than their developed counterparts.

The JPMorgan Emerging Markets Trust (LSE: JMG) is another broad play on these fast-growing, undervalued markets. We also like the Templeton Emerging Markets Investment Trust (LSE: TEM). Also worthy of further research is the Utilico Emerging Markets Trust (LSE: UEM), which, uniquely in the sector, focuses on infrastructure and utilities in developing countries.

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Investors complain that complex planning rules thwart infrastructure projects. Administrative bloat is blamed for burdening the state budget. Sound like Britain? It’s not.

This is Vietnam, and the government is responding in a decidedly non-Whitehall way.

The one-party communist state is going all-out for growth, announcing sweeping reforms dubbed a “bureaucratic revolution”.

Hanoi plans to slash at least one in five civil service positions, and to abolish a quarter of government agencies. Major ministries are to be merged, says David Hutt in Deutsche Welle. The idea is for there to be more coherent government and less red tape.

How Vietnam is winning the trade war

MoneyWeek has liked Vietnam for a long time, but it has been a “sleeper hit”. While nearby Asian giants hog the headlines, the country’s consistently strong, compounding growth story has flown just below the market radar. In the mid-1980s Vietnam was one of the world’s poorest nations. Then, market-friendly reforms (known as the “Doi Moi”, meaning “renovation”) transformed the war-wrecked economy into a global manufacturing powerhouse. GDP per capita has risen more than fivefold since the mid-2000s.

Today the nation of 100 million is among the workshops of the world. Shoes and clothing produced by the likes of Nike, Crocs and Adidas increasingly bear the label “Made in Vietnam”. Electronics are booming, with Sony, Panasonic, Intel and LG all scrambling to set up factories. Korean giant Samsung alone has invested more than $22 billion building up capacity in Vietnam, says The Wall Street Journal. Today, Apple has 35 suppliers in the country, triple the number it had before Trump’s first-term trade war with China.

Vietnam was one of the major winners of the 2018 US-China trade split. Many multinationals hedged their bets by moving parts of their supply chains the short hop south of the Sino-Vietnamese border. Vietnam’s economy used to be dominated by the entrepreneurial, formerly capitalist south. The investment influx has helped the more statist north catch up. Rice paddies in once-sleepy towns near Hanoi – the seat of government – have given way to billion-dollar factories that assemble smartphones and semiconductors for the world.

Donald Trump is back in the White House, but it’s not clear that Vietnam will be a winner of a trade war re-run. Hanoi hasn’t been targeted in Trump’s first tariff flurry, but investors haven’t forgotten 2019, when he branded Vietnam “almost the single worst abuser” of US trade. The country has become a victim of its own manufacturing success. Its trade surplus with America exceeds $100 billion, the third largest in the world after China and Mexico. Trump, once he’s finished quarrelling with Canada and Mexico, is sure to notice. US unpredictability is a huge source of risk for Vietnam, says Gareth Leather of Capital Economics. A tenth of Vietnamese GDP stems from US consumption of goods produced in the country.

That said, there are reasons for optimism. Trump didn’t directly mention Vietnam on the campaign trail. He has mulled imposing a 10% “universal tariff” on all foreign imports, but that would establish a “level playing field” and wouldn’t stop Vietnam’s exporting momentum. The big risk is that Washington singles out Vietnam for higher tariffs, but there could be scope for leaders to negotiate a deal. For one thing, Hanoi could crack down on the re-routing of Chinese wares through its territory, a common strategy to dodge US tariffs, but one from which Vietnam gains little economically. Officials could also offer to buy more US soybeans, corn and Boeing aircraft to get on Trump’s good side.

Foreign investors in Vietnam are not directly exposed to much of the export economy, which is in the hands of foreign-owned (especially Korean and Japanese) multinationals. Local stocks are dominated by financials (27.5% of the MSCI Vietnam index), real estate (25%) and consumer-facing businesses (17%). But the export sector keeps the rest of the economy running, and a trade downturn would be painful for everyone.

For British investors, there are two main London-listed funds to buy into the Vietnamese growth story: Dragon Capital’s Vietnam Enterprise Investments (LSE: VEIL), which focuses on listed stocks and pre-flotation opportunities, and the VinaCapital’s Vietnam Opportunity Fund (LSE: VOF), which takes in a broader range of assets including private equity. VEIL has gained a third over the past five years, with VOF up 47%.

The local VN equity index has returned 10% over the past year, but sentiment appears shaky. In the Biden years the financial press was full of stories about the genius of Vietnam’s supple “bamboo diplomacy”, which helps it thrive by trading with different geopolitical blocs. Yet recently the tone has darkened, with headlines asking whether Vietnam will be Trump’s next target.

Domestic politics has also unnerved investors, with complex political manoeuvring seeing the country go through four presidents in three years. However, that rocky period now appears to be over, says Alexander Vuving in The Diplomat. The newly consolidated leadership has acted with “dizzying speed”, rolling out plans for new infrastructure and radical administrative reform designed to make government more efficient.

Weak sentiment makes for reasonable entry prices. “Market valuations remain attractive,” says Khanh Vu in the Vietnam Opportunity Fund’s December fact sheet. On 10.3 times forward earnings, valuations are one standard deviation below the ten-year average. Add in forecast 13%-15% earnings growth for listed companies in 2025 and you have a decent set-up for a stock market upswing – just as long as Trump doesn’t spoil the party.

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Is investors’ love affair with India beginning to cool? Foreign investors have now sold more Indian shares than they have bought in each of the past four months, with net outflows of $8.3 billion in January alone. After a stellar run, India’s stockmarket has come off the boil since the autumn, held back by concerns about the country’s slowing economy. That’s disappointing for investors who have become accustomed to outsized returns. Between 2020 and 2023, India’s stockmarket delivered a total gain of 90%, with further growth of 16% over the first nine months of 2024. Since September, however, the benchmark Nifty 50 index has fallen by 15%, the biggest drop in the past decade.

Where, then, from here? India’s fans believe a return to form lies ahead. “We expect growth momentum to improve entering 2025, as government spending picks up again and consumer sentiment remains resilient,” says Sukumar Rajah, director of portfolio management at Franklin Templeton Emerging Markets Equity. Others are more cautious. Deloitte points to the tough outlook for the world economy. “India will have to adapt to the evolving global landscape and harness its domestic strengths to drive sustainable growth.”

Nevertheless, amid such uncertainty, the case for holding long-term exposure to India in your portfolio remains compelling. The country’s economy remains on course to become the world’s third-largest, possibly as soon as 2027. Demographics offer a huge dividend, with the number of working-age Indians as a proportion of the total population set to keep rising until the 2050s. The middle classes in India have been expanding at an average rate of 6% a year over the past 30 years. Their higher disposable income provides valuable impetus for household spending.

India's economy is still in the early days of transformation

Importantly, moreover, India is still in the relatively early stages of the sort of economic transformation that propelled rapid growth in China in the 1990s and the 2000s. In manufacturing, for example, there is a huge opportunity to grow a sector that still only accounts for 20% of the economy; India’s government has set a target of reaching $1 trillion-worth of goods exports by 2030.

Infrastructure spending also continues to offer support; India has built 75 new airports in the past five years alone and launched more than 20 metro rail projects. It now plans to invest a further $1.4 trillion over the next five years. Separately it is also investing $360 billion to double the country’s renewable energy capacity.

That’s not to overlook the short-term concerns. The downside of that demographic dividend is that India suffers from a problematic oversupply of labour, with millions of Indians chasing jobs that both the public and the private sector are struggling to create fast enough. That is depressing wages, and stagnant real incomes are now affecting consumer spending.

In the vehicle sector, for example, car sales were much slower than expected in the final months of the year. Disappointing retail sales have prompted Western businesses such as Starbucks to slow their expansion in India. With consumption accounting for 60% of the Indian economy, the government’s latest projection is for GDP growth of 6.4% over the year to 31 March. That would mark the slowest growth since Covid. The other question mark – and a perennial worry in India – is over the high prices investors pay for Indian equities. The market is on an average price/earnings (p/e) ratio of 23 times. That looks expensive compared with an average of 14 across emerging markets as a whole.

Still, for those investors who believe in India’s fundamentals, the correction could represent an opportunity to get into a market at slighter lower valuations than in recent times. And some analysts argue that a premium to most other markets is justified given the country’s long-term growth prospects.

“[If] earnings growth continues in the same vein as it has, that valuation quickly comes down,” says Ben Yearsley, director of investment consultancy Fairview Investing. “This isn’t a value or income market – it’s growth through and through; alongside the US, Indian firms deliver the highest return on equity in the world.” The quality of the Indian market is very high compared with other emerging economies, with a large number of companies and strong corporate governance standards. The choice continues to expand: India has seen more than 700 initial public offerings in the past three years.

It is also worth exploring routes into the market that provide value. Investors in India will almost all want to pursue opportunities through a collective fund to secure portfolio diversification and expert management. The UK offers several investment trusts that specialise in India; some are currently trading at significant discounts to their net asset value (NAV).

The Abrdn New India Investment Trust (LSE: ANII), for example, trades at a discount to NAV of 18%. The fund offers a relatively defensive portfolio, and may therefore represent reduced risk. Another MoneyWeek favourite is the India Capital Growth Fund (LSE: IGC), which focuses on small and mid caps, on a discount of 12%. There is also the highly rated Ashoka India Equity Investment Trust (LSE: AIE), on a small premium of 1%.

The bottom line? Many investors will feel that the fact that Indian equities account for only 4% of total global stockmarket capitalisation underlines the scale of the long-term opportunity. In what will soon be the world’s third-largest economy – and a powerhouse of global growth, even at slighter slower rates than in recent years – that looks under-represented. There may be further bumps to come, but India enthusiasts remain convinced of its potential.

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There’s no question that Chinese stocks have been a huge disappointment for investors. Over the past decade, the MSCI China index – the standard benchmark for foreign investors – has delivered a gross total return of 3.9% per year in sterling terms, barely half the already-disappointing return for the MSCI Emerging Markets ex China.

It used to be easy enough to argue that the overall market was poor because of the large number of state-controlled firms with little concern for their minority shareholders, but there were still excellent opportunities in technology or consumer goods. Yet that has been a harder case to make lately, since many of the big private-sector names have been weak over the past five years.

Still, taken at face value the market now looks cheap: the MSCI China trades on ten times forecast earnings. Certainly that reflects the presence of many poor-quality companies, but a valuation this low redeems a lot of sins for investors willing to take the risks.

Two problems that floored Chinese stocks

And there is no shortage of risks. We can come up with a list of reasons to worry about China in the medium term. There’s demographics: the population is set to age faster than almost any other country. There’s geopolitics – its territorial interests may one day bring it into direct conflict with other powers such as the US, particularly its insistence that Beijing should one day rule Taiwan, regardless of the views of the Taiwanese people. These are real concerns for investors over the next decade.

That said, we can find reasons to be bearish about almost any country and these have little to do with how poorly the economy and the stockmarket have performed over the past few years. Instead, we can put the immediate problems down to two things.

The first is the bursting of the real-estate bubble. Property had become a huge proportion of GDP – about 25% including both direct and indirect demand – and a key source of growth. It had also become wildly over-supplied, over-valued and over-indebted. The biggest problem with the decision to bring it to an end by curbing lending to developers is that the tougher rules came far too late. Policymakers made the same mistake as Western governments in the 2000s of letting a real-estate bubble run for far too long, with the result that tackling the problem became even more painful.

The second is the crushing of “animal spirits” in the economy, through a series of other crackdowns on tech firms, finance and some smaller sectors. As with real estate, there were often solid arguments for the government to intervene. The giant tech firms had taken advantage of limited regulation and state influence (compared to many sectors of the economy) to build dominant positions and to try to extend this as widely as possible. There was a risk of ending up with entrenched monopolies that harmed consumers and smaller businesses.

The problem was that the crackdowns showed all the traits that worry investors most about China: very sudden changes to regulations, no certainty on where the limits would be, a lack of fundamental private property rights and rule of law, and unambiguous signs that private-sector firms would be squeezed in favour of state-owned enterprises, and increasingly co-opted into serving the priorities of the government rather than shareholders.

China's government must do more

No wonder that foreign investors became relentless sellers and talk of China being “uninvestable” was common. The sluggish performance of the A share markets – stocks listed in Shanghai and Shenzhen – showed that domestic investors were becoming increasingly pessimistic as well.

However, last year there were some signs that the government has pivoted and is becoming more pro-growth and even a bit more pro-business. There have been some moves to boost consumption, support the real-estate sector and provide more financing for local governments. This led to a pop in Chinese shares in September, but the gains have not been sustained. Investors feel the government hasn’t done enough to turn around the economy and that it needs to do more, especially in real estate. The widespread consensus is that the property sector is so influential there is no way to get growth going again without stabilising it in the short term. There is also a fair amount of optimism that the government will do more. If it does, China is so unloved there is a lot of potential for markets to rally.

There are three trusts in the China specialist sector. While they share many major holdings, they also feel distinctively different, which is helpful for investors. All trade on similar discounts of 10%-11% at present, so the decision is really down to strategy.

The largest by far is Fidelity China Special Situations (LSE: FCSS) at £1.6 billion in assets, which last year merged with Abrdn China. One would not call this a value fund, but relative to the others it has a tilt to value and to mid-cap and small-cap stocks. It has the best return of the three over most recent periods, despite carrying the most gearing (23% now) in a tough market.

Next, at £225 million, there’s JPMorgan China Growth and Income (LSE: JCGI). This targets an annual dividend of 4% NAV, paid quarterly, but it doesn’t specifically invest for income – the portfolio has a growth tilt. So some of the payout will come from capital, as is increasingly common with higher-yielding trusts.

Lastly, Baillie Gifford China Growth (LSE: BGCG), with £160 million, is focused on growth stocks in sectors such as tech. This is the former Witan Pacific trust, which was turned over to Baillie Gifford with a new single-country focus in October 2020. The timing of this was not ideal given the crackdowns, and it has fallen a long way since (although better than JCGI). However, if the outlook is genuinely changing, its approach could be a beneficiary.

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In a year when US tech stocks made the running, emerging markets (EMs) again underperformed their developed counterparts. But some green shoots are starting to sprout. The benchmark MSCI EM index was up 8% for the year to mid-December – underwhelming compared with the near-19% gain for the equivalent developed-markets index, but the performance gap is smaller than 2023, and much better than the 22% plunge during 2022.

Why have emerging markets underperformed?

The biggest cause of EM sluggishness over the past few years has been plummeting Chinese stocks. But there are now two reasons for optimism. Firstly, China’s share of the MSCI EM index has dropped, down from a peak of almost 40% in 2020 to 27% now. Today’s EM portfolio is thus more geographically balanced. Secondly, China’s market has revived, with the CSI 300 index posting a 16.5% gain for 2024. Few saw that coming, but strong official promises of economic stimulus in the autumn left Chinese investors jubilant.

India, the second-largest component of the EM index, also had another solid year. The BSE Sensex is up 9.5%, although with valuations stretched, global investors have become wary in recent months.

How the AI revolution impacted emerging markets

As they are heavily weighted towards Asia, emerging markets offer more exposure to technology trends than is often appreciated. Nowhere is this more the case than in Taiwan, this year’s best-performing major EM. The local Taiex index has soared 28% and is up 62% since the start of 2023. The reason? AI mania, which has fuelled demand for Taiwan’s semiconductor manufacturing wizardry. A diversified bet this is not – chip giant TSMC alone now accounts for more than half of the MSCI Taiwan index.

A more surprising AI winner has been Malaysia, where the KLCI index has rallied 10% in 2024. US tech giants have been pouring billions of dollars of investments into cloud and AI facilities in the country, says Patrick Lee for Al Jazeera. After a “lost decade”, Malaysia is enjoying “a moment in the sun”.

The AI story has been very uneven, with only a few companies and countries capturing most of the gains. Thanks to Samsung, South Korea is an important node in the global chip industry, but it’s evidently not the kind of expertise that AI investors currently want. Add in a failed coup attempt and the Korean Kospi is off 8.5%.

Elsewhere in emerging Asia, fortunes have been mixed. Thailand’s SET has endured another dull year, with a 2.5% fall, while the Philippines’ PSEi has been flat. Indonesia’s IDX composite has dropped 4.5% amid signs of softening growth Vietnam’s VN-index enjoyed an 11% gain, but the country is not in many EM trackers because it is still usually classified as a frontier rather than an emerging market.

Political risks rise

It has been a bad year for Latin America’s leading markets as left-leaning presidents frighten away investors. Brazil’s Ibovespa has lost 8% as markets gradually lost trust in president Lula’s ability to keep spending under control. The real currency has lost a fifth against the dollar this year. Bloomberg said that traders in the country are entering “panic” mode. Meanwhile, Mexico’s IPC index is down 12%. The country looks likely to be one of the worst affected by Donald Trump’s tariff plans. But copper champion Chile’s IPSA is up 4%. Among other commodity plays, South Africa’s JSE Top40 has gained 7.5%, while Saudi Arabia’s Tadawul is flat.

Finally, emerging Europe has enjoyed a solid year. Poland’s WIG20 slipped 3.5%, but the Athens ASE index is up another 12% as Greece’s recovery gathers pace. Most impressively, the Czech PX has surged 24%. The Prague market stagnated through the 2010s, but has been enjoying a strong run over the past two years to reach 16-year highs. “Betting that the last shall be first” is “far from a foolproof investing strategy”, says Spencer Jakab in The Wall Street Journal. But “when it comes to beaten-down” EMs, “buying what feels uncomfortable” can sometimes pay off handsomely.

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I am a longstanding bull on emerging markets – a position that feels more difficult with every passing year of disappointing returns. Emerging markets have lagged developed ones for more than a decade: 3.7% per year over 10 years, versus 9.1% for the MSCI World and 4.7% for the MSCI World ex USA. Still, we can at least say that 2024 has been a bit underwhelming rather than awful.

The MSCI Emerging Markets index is up by 13% so far this year (12% in sterling terms), which sounds reasonable until we note that the MSCI World is up by 22%. The exceptional performance of America plays a large role in this, and emerging markets have actually beaten the MSCI World ex USA (up 11%), but it’s difficult to claim that’s enough reward for the extra risk. Still, emerging markets are a very diverse group and some have done very well.

Winners and losers in emerging markets

India has returned 19%, despite recent signs of nerves, and China is up by about the same after a sharp rally in September driven by hopes that government policy is turning more pro-growth.

Taiwan is up by 41%, although that’s due to one stock – chipmaker TSMC, which accounts for half the index and rose 75%. Almost anybody who bought a Taiwan fund on the basis that the economy is heavily geared to the tech boom would have done worse than this since most funds have to cap their exposure to a single stock.

Of course, Taiwan is an emerging market only in an investment sense (there are certain technical restrictions on market access): in reality, it is a highly developed country, as is South Korea, which had a poor year (down 12.5%, and 21% in sterling terms) even before the president tried to declare martial law recently. This is also partly due to one stock: Samsung Electronics, a quarter of the index, which has slumped 30% amid problems with its own chip-making business.

These are the four key markets, together amounting to 75% of the index. Elsewhere, Brazil struggled with rising interest rates and concerns about government spending, leaving the market down 11% (and more than twice that in sterling terms due to the slump in the real). Mexico has fallen a similar amount on concerns that a landslide victory for the governing party may undermine the rule of law. Middle East markets have suffered from weaker oil prices.

Southeast Asia has been lacklustre, even though Singapore (which is part of the developed index, but economically geared to its neighbours) is up 32%. A single stock again accounts for part of that – internet group Sea, headquartered in Singapore but listed in New York, rallied 200%.

The good news is that emerging markets still look cheap, both in aggregate (a forecast price/earnings ratio of 12) and individually – except India and perhaps Taiwan. What’s missing are tailwinds to lift more markets at the same time. History suggests a weak dollar would be helpful, but we’re certainly not seeing that at the moment. Still, if US stocks overheat, emerging markets are the obvious contrarian value play.

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Veteran fund manager Nils Taube used to advise people “never to invest in a country where you don’t need a coat in winter”. That view came to seem antiquated when Jim O’Neill of Goldman Sachs coined the term “Brics” to cover the largest emerging economies: Brazil, Russia, India and China. O’Neill’s thesis was that these countries were emerging as central players in the world economy. They were collectively set to overtake the G6 developed economies in size on a purchasing power parity basis by 2025. The implication was that these countries would account for an increasing share of global stock markets.

Instead, Brazil has proved the old adage that it is “the country of tomorrow and always will be”. Russia has gone backwards economically and disappeared as a destination for investment. The Chinese economy is struggling to recover from a huge property bust and stocks have flatlined for 25 years. Only India is making the progress expected, while South Africa, tagged on as an afterthought, struggles with crime, corruption and anaemic growth.

There are bright spots in emerging markets, including Poland, South Korea, Vietnam and – who would have believed it – Argentina, but some of Goldman Sachs’ “Next Eleven” are either struggling (Mexico, Nigeria) or have gone backwards (Iran). The share of the MSCI All Country index accounted for by emerging markets is just 10%, no higher than when the term Brics was first coined.

Is JPMorgan's fund the best way to invest in emerging markets?

Still, as Austin Forey, manager of the £1.3 billion JPMorgan Emerging Markets Trust (LSE: JMG) since 1994 reminds us, investing in emerging markets is about “long-term investment in really good businesses with sustainable growth”. These companies are mainly to be found “in the same sort of places in terms of sectors”. Indian companies account for 24% of the portfolio, Chinese for 20% (plus another 6% in Hong Kong), Taiwanese 17% and South Africa 7%. More importantly, 26% is in consumer stocks, 27% in financials and 30% in information technology. “The global technology revolution is powered by emerging markets,” says co-manager John Citron. “The vast majority of the world’s hardware and a clear majority of its software is built in emerging markets; hardware in Taiwan, Korea and China and software in India, but also Latin America.”

Hence the top three holdings are Taiwan Semiconductor, Tencent and Tata Consultancy, comprising 10.7%, 6.8% and 4.7% of the portfolio respectively. There are about 60 holdings in all, but the top 10 make up half the total. Turnover is low, but “interesting new ideas this year have pushed it up”. Nine smaller positions have been sold. On the aggregate numbers, emerging markets look cheap with a valuation of 11.9 times forward earnings, says Forey. But JMG believes in paying up for quality (the portfolio’s multiple is 16.4, but with a return on equity of 16.4% against 11.3% for the index, and net cash compared with borrowings of 24% of net assets).

“We weren’t cautious enough about China, but a lot has changed recently. I don’t worry about the stocks we own there.” He struggles to find value in India’s “red-hot market”, but is adding to exposure to Latin America, including 5% in Argentine firms. Performance has lagged the MSCI Emerging Markets index in the last three years (-8% versus +2%), but has picked up in the last year (+14%) and has been consistently ahead of the index longer term. This is creditable for a trust that sticks to larger companies and is wary of straying too far from the benchmark index. In addition, the shares trade at an attractive 14% discount to net asset value (NAV). Taube’s maxim would rule out investing in much of the US, while O’Neill’s focus on the Brics ignores the success of the small, geopolitically unimportant countries such as Taiwan, Singapore and Chile. With sentiment towards emerging markets at a low ebb, this could be a good time to invest in their best companies.

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“India: too expensive or the world’s best growth story?” asked one of the attendees during the emerging markets session at MoneyWeek’s reader conference earlier this month, concisely summing up the dilemma for investors. India has one of the simplest and most compelling narratives of any long-term bull market: young demographics, vast potential for catch-up growth, unusually large and high-quality stock market by EM standards, and a record of considerable progress in recent years. Yet it’s still hard to feel entirely comfortable about paying 25 times earnings for it.

This is not a new dilemma. India has long been an expensive market relative to its peers. The chart shows the price/earnings ratio for the broad market stretching back almost 30 years: ignore the trough and spike in 2020/2021– caused by the pandemic panic and subsequent impact on earnings – and note that the market actually looks cheaper than it did at the end of the last decade, even though it has more than doubled since then. It has rarely dropped below 15 since the start of the 2000s, meaning that it has usually been at the upper end of the EM peer group.

There have been weak patches, accompanied by the kind of events that always worry EM investors: the market struggled in the early 2010s amid high inflation and a series of political and corruption scandals, and again towards the end of the decade amid a sharp economic slowdown and problems in the shadow banking sector. Yet, in both cases, earnings growth eventually came through and the market went on to new highs.

Is investing in India too risky?

Still, there are growing reasons to wonder if another tricky spell could be on the way. The government did unexpectedly poorly in the general election in June, which could hurt the prospects for further economic reforms. Company earnings suggest that weak consumption growth is spreading from the rural poor (who have benefited least from the boom of the last few years) to urban residents – exactly the opposite of what we would hope to see. Rising delinquencies at microfinance lenders may be a sign the credit cycle is souring. Now the decision by US prosecutors to lay bribery charges against billionaire Gautam Adani, a close ally of prime minister Narendra Modi, recalls those early 2010s scandals that helped shuffle the previous government out of power.

It’s impossible to say what the consequences of the Adani case will be. There is no prospect of him facing any direct legal risks within India. However, the country depends heavily on a handful of large business groups, of which Adani’s is the newest, to undertake major projects. This requires a lot of foreign capital. The charges may make it harder for Adani to raise funding overseas and potentially affect the speed and cost of financing for other projects as well. Less investment will hinder growth. That may mean weaker earnings, which would surely take some momentum out of the market. It’s too soon to call the top, but after such a strong run, the odds of a setback are clearly rising.

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Indian stocks “are on fire”, says Jacky Wong in The Wall Street Journal. The BSE Sensex stock index has rocketed 28% higher over the past 12 months and has more than tripled since an April 2020 pandemic low. The boom rests on strong fundamentals. 

GDP expanded 6.7% year-on-year in the second quarter, with net company earnings up 9% or so over the same period. Billions of dollars of inward investment are pouring into local manufacturing as multinationals look to diversify supply chains beyond China. Still, with the local market trading on a forward price/earnings ratio of more than 24 – pricier even than US stocks – investors are being asked to pay dearly for a piece of the action. 

Indian shares recently passed a new milestone, says the Financial Times. Its share of the MSCI All-Country World Index (ACWI) has surpassed that of China on a free-float basis. The ACWI is still dominated by US stocks (accounting for two-thirds of the index), but India has the sixth-biggest weighting and is now a fixture of the global investment landscape.

Could the Indian market be overheating?

Yet global fund managers are holding back. Concerned about valuations, foreign institutional investors turned net sellers of Indian shares last month. For 2024 as a whole, they have so far added a net $2.6 billion of India exposure, modest compared with last year’s $22 billion figure. 

The boom is instead being driven by local retail investors yet, as one unnamed bank executive in Mumbai puts it, many of these small investors “have no understanding of the risks... There’s a whole generation of people who have not seen a market correction”. 

Propelled by a four-year bull run, stock mania that started in Mumbai and New Delhi is now reaching deep into the country’s “hinterlands”, say Chiranjivi Chakraborty and Preeti Singh on Bloomberg. 

Net wealth has risen an average of 8.7% a year in India since 2000, leaving many ordinary people with extra cash to invest. But the speculative boom is making regulators “nervous”. Small investors have been piling into high-risk equity options in pursuit of a big payday. Small-cap stocks have been particularly frothy – a wave of “tiny firms with fragile balance sheets” are cashing in on the frenzy by launching overpriced initial public offerings. 

There are still “compelling structural factors” driving the Indian growth story, say JPMorgan’s analysts. Manufacturing is “gaining traction”, infrastructure is improving rapidly and a young population promises several decades of economic dynamism to come. On forecast growth trends, India should surpass Japan and Germany to become the world’s third economic power by 2027. That said, with valuations rich and recent earnings coming in a little softer than expected, stocks could be due to “take a pause – at least for now”.

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Gabriel Sacks, Co-Manager, abrdn Asia Focus plc

Emerging markets (EMs) played a big part in my formative years. My mother is Brazilian. My father is South African. I was born in Brazil and raised in Rio de Janeiro and São Paulo.

Later, when I began my investment career, South Africa was the first market for which I had responsibility for research coverage. Nowadays, further extending the theme, I invest in a region replete with EMs – Asia.

Ask me to define an EM, though, and you might be disappointed by the vagueness of my response. To be honest, I doubt anyone could supply a truly comprehensive answer – less still a genuinely satisfactory one.

The term “emerging market” was originally coined by the World Bank in the 1980s. It was offered as an alternative to its predecessor, “Third-World Equity Fund”, which was met with an understandably lukewarm reception.

Today the World Bank no longer maintains an official list of EMs. Classification is instead the remit of the International Monetary Fund, a tiny number of academic institutions and, above all, several major index providers.

The World Trade Organisation even lets its members self-identify as “developing” or “developed”. This merely adds to the confusion, as a result of which the question often becomes less a case of what an EM is and more a case of what it is not. 

For example, India is tipped to soon become the world’s third-largest economy, while China’s economic might is already second only to the US’s. So why do these countries remain categorised as EMs?

One reason is that sizeable swaths of their populations still earn low incomes and have a poor standard of living. This means fully fledged status as a modern, industrial economy has yet to be achieved. 

There are many other considerations that might also be taken into account. They include quality of regulation and/or financial systems, market accessibility, rates of growth and even average life expectancy.

Yet I wonder how many investors think the most significant characteristic of an EM is risk. Historically, investing in these economies has been seen as entailing more uncertainty than investing in developed markets (DMs). That being relatively less developed or industrialised, and sometimes with less stable governments, more volatile currencies and less established markets, always brings heightened investment risk.

Does this view invariably hold true today? I would say not. The data from Asia strongly suggests investors should look beyond such clichés and recognise the potential benefits of diversification in all its forms.

More performance, less volatility

In identifying attractive businesses in Asia, we always search for quality. A company should have an effective operating model, a meaningful competitive edge, good management, a solid balance sheet and a firm grasp of sustainability and governance issues.

It is wrong to suppose such businesses simply do not exist in EMs – or even that they are relatively scarce. They are there. The trick lies in finding them, which is why we believe it is extremely valuable to have a dedicated research team with an on-the-ground presence in the regions in which in invest.

Many of the most promising companies lie towards the smaller end of the market-capitalisation spectrum. Again, though, this does not imply they are inherently riskier.

It instead further underscores the value of having a team capable of unearthing hidden gems. It also highlights the importance of active management in supporting a positive trajectory over time.

So how might a portfolio of such holdings perform? This is where the blurring of the lines between EMs and DMs – at least in investment terms – becomes strikingly apparent.

Since 2000, according to Bloomberg data, Asian small-caps have comfortably outperformed DM large-caps. Specifically, the level of returns from the MSCI Asia ex Japan Small Cap Index during that period has been almost twice as high as that from the MSCI World Index.

Of course, cynics might fall back on the time-honoured trope and say this difference can be ascribed to greater risk. Investors in Asian small-caps have just taken their chances and reaped the rewards, right?

Not necessarily. Take, for instance, data that shows Asian small-caps have experienced notably less volatility than their DM counterparts over the past six years, with the MSCI Asia ex Japan Small Cap Index more settled than its UK, Europe and World peers.

The fact is that every market involves risk – particularly in an era punctuated by geo-economic and geopolitical shocks. Look at the UK’s woes during the past few years. Remember the turmoil that surrounded Europe in the run-up to France’s recent snap election. Imagine what might have happened in the US if Donald Trump had not turned his head a split second before his would-be assassin opened fire. 

Ultimately, the key lesson for investors is that diversification across regions, market capitalisations, asset classes and individual stocks might be more prudent today than it has ever been. Diversification is how we spread and therefore aim to reduce risk.

Debates over the deeply nuanced distinctions between EMs and DMs may continue to rage in perpetuity. But there should be precious little dispute – if any – about the likely advantages of locating opportunities right across the investment universe.

Important information

• The value of investments, and the income from them, can go down as well as up and investors may get back less than the amount invested.
• Past performance is not a guide to future results.
• Emerging markets tend to be more volatile than mature markets and the value of your investment could move sharply up or down.

Other important information:

Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG. The company is authorised and regulated by the Financial Conduct Authority in the UK.

Find out more at http://www.asia-focus.co.uk/en-gb or by registering for updates. You can also follow us on X and LinkedIn.

Brazilian stocks rode a “wave of optimism” to a record high last year, says Marcelo Azevedo in Folha de S. Paulo. Markets were relieved that the newly installed left-wing administration of Luiz Inácio Lula da Silva had promised to keep spending under control. This year has been trickier. In January it was apparent that US interest rates would stay higher for longer. That has squeezed emerging markets such as Brazil, which struggle to attract the attention of US-based investors when dollar bonds are already paying well. In April, Brazil’s government compounded the problem by relaxing fiscal targets, further spooking investors.

Are investors losing confidence in Brazil?

The local bovespa stock index has dropped by 5% this year, while the real has been among the worst-performing emerging market currencies this year. A bigger welfare budget has seen state spending rise by 6% above inflation since Lula took office, Rafaela Vitoria of Banco Inter tells the Financial Times. Brasilia has backpedalled on pledges to achieve a primary budget surplus (meaning that government tax revenue exceeds expenditure, excluding interest costs), say Michael Pooler and Beatriz Langella, also in the Financial Times. 

At 76% of GDP, Brazilian public debt is already high for an emerging economy. Brazil is in a more precarious position than its peers, Thierry Larose of Vontobel Asset Management tells Craig Mellow in Barron’s. “Debt service already eats up nearly 30% of Brazil’s state revenue, compared with 15% for Mexico.” Instead of tightening the purse strings, Lula’s first instinct has been to blame the central bank for supposedly keeping interest rates too high. 

“Global investors have soured on the Brazil story”, but on an average of just 7.5 times earnings – a roughly 25% discount to the historical average – the market does contain some “deep value plays”. And, as Larose notes, “Lula has a track record of shifting pragmatically before things get out of control”. 

The president may have just pulled off one such pivot, says The Economist. Between 1 January and mid-June, the real had plummeted by 17%, but Lula has since thrown his weight behind finance minister Fernando Haddad, who wants to keep spending tight. That has calmed markets, helping to spark a mini-rally in Brazilian assets in recent weeks. 

An immediate crisis is not imminent. The “central bank has $360 billion in reserves” and “almost all the public debt is in local currency”. But an economic model built on “high commodity prices” and “subsidies to favoured businesses” will do nothing to cure “stagnant” productivity or improve the “deficient” education system and infrastructure. The population is ageing and pensions already account for “44% of federal spending”. Brazil is “walking on the financial wild side”.

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Is it “time for a fresh look” at emerging markets (EMs)? asks Russ Mould of AJ Bell. The investment category has underperformed developed markets (DMs) for over a decade, leaving it at a steep discount to the US-dominated DM index. EMs trade at a roughly 35% discount to developed markets, with their weight in the average global mutual fund declining from 13% in 2010 to just 5% today, says Tom Stevenson in The Telegraph. Now, with global interest rates falling, they could be due a revival. The two key ingredients will be “China and commodities”. Beijing’s recent stimulus plan has lifted sentiment: Chinese shares are the largest single component of the MSCI EM index, a widely used benchmark. As for commodities, while the short-term picture is weak, long-term structural growth in demand for green transition metals heralds a favourable wind for the likes of Chile and Indonesia.

There have been pockets of strength, says Jay Jeon of Research Affiliates. Aided by booming demand for artificial intelligence semiconductors, Taiwan has returned more than 20% a year over the past five years, with India returning 17% per annum over the same period. Still, both markets now have valuations “that appear to be stretched to extremes”. Investors should not bank on continued outsized returns. “We are setting up for a major correction in India within the next year. People are so euphoric,” Ajay Krishnan of equity manager Wasatch tells Craig Mellow in Barron’s. Mellow suggests that investors instead investigate other more niche parts of the EM sector. The UAE is enjoying a listings boom. Southeast Asian countries, meanwhile, are “well positioned for the continued shifting of global supply chains”.

Emerging market dynamism doesn’t mean returns

A key attraction of emerging economies is their greater dynamism and growth potential, says Derek Horstmeyer in The Wall Street Journal. Yet, over the past decade, of the seven fastest-growing economies only one (India) has seen positive annual equity returns. “China, the Philippines, Vietnam, Turkey, Indonesia and Malaysia all averaged negative returns.”

How can this be? One factor may be that investors become overexcited, pricing in even better growth than that which ultimately occurs. There is also evidence to suggest that strong economic growth in EMs is often accompanied by a weakening currency (which makes exports more competitive). While stocks soar in local currency terms, foreign investors thus lose out. China and India show that growth doesn’t necessarily bring gains, says Edward Chancellor on Breakingviews. Chinese GDP growth has comfortably outstripped India over the past 15 years, but India has delivered far better equity returns.

The key factor is capital scarcity. Investment funds are plentiful in China because of the country’s “vast domestic savings”. That has caused overinvestment in unprofitable ventures, such as property. India finds itself in the opposite position, with expensive capital forcing companies to be disciplined. Gillem Tulloch of GMT Research estimates that between 2014 and 2023, Indian corporate return on equity (ROE) averaged 10%-13%, while in China it fell from 10% to 6%. When a market becomes saturated with investors’ cash, high returns are unlikely to last.

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Look back over many decades and you can spot a handful of big themes that dominated markets for five or 10 years at a stretch. They were rarely the only way to make money, but latching on to one of them at the right time was a huge help. We are clearly in a different economic regime to a few years ago, so it’s worth considering what will be the defining theme of this era. 

That’s easier said than done – but one starting point is to identify the top themes of the past 50 or 75 years. For the past decade, the answer was tech. You could make outsized returns in other sectors (eg, luxury), but tech has dominated the discussion. 

Rock-bottom interest rates were the key characteristic of our era, but you would have made less from directly betting that rates would stay low than buying the big tech boom that they helped fuel. That’s an important lesson about finding the best way to profit from an insight. In the 2000s, we had many choices. 

Emerging markets, energy and natural resources, and gold were all linked: the rise of China and other emerging markets drove demand for commodities and probably precious metals. The other big theme was the real-estate boom, which ended in disaster and the global financial crisis, but was all that many people cared about at the time.

Tech investing trends and emerging markets

Most investors would again pick tech for the 1990s, but there were notable differences to the 2010s. First, the recent bull run was driven by established large caps that were still achieving spectacular growth. 

Conversely, while there were profitable stocks in the dot-com bubble, very speculative start-ups played a bigger role. Second, tech came to prominence later in the decade. Before that, emerging markets were arguably the centre of the hype, before they started to run out of steam in the middle of the decade and collapsed into crisis in 1997-1998. 

The obvious 1980s theme is Japan, which grew to be the largest stock market in the world. Many stockmarkets did well in this era, rising from depressed valuations, but Japan also got a boost from a rising currency, making it compelling for foreign investors. Of course, buying bonds on 15% yields in 1980 also turned out well – but few investors were calling for that at the time and a key part of a big theme is that it has a compelling, positive story that everybody is talking about. 

The 1970s were an era of volatility and high inflation: great for energy, commodities and gold, and not much else. Buying equities in the 1974 panic set investors up very well for the following decade – but it didn’t pay off for a while. 

The main feature of the late 1960s was the “Nifty 50” bubble of US growth stocks. The 1950s and early 1960s feel murkier, but key trends were the rebuilding of Western economies after the war, the rise of the consumer and a broad equity boom. That’s almost another (re)emerging market story. History does not repeat itself exactly or predictably, but there are a few obvious insights in looking at how these themes rotated.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.