Emerging Markets Show Strong Gains Amid Global Uncertainties

Emerging market assets are set for the biggest gains since 2017. Trade policy shifts and U.S. valuations influence investors. The MSCI Emerging Markets Index forecasts a strong performance. Strong domestic policies and global phenomena such as AI growth drive the rally. Geopolitical risks, including the Russia-Ukraine war, remain concerns.

Emerging market assets are poised to end the year with their biggest gains since 2017, driven by trade policy shifts and the search for more attractive investments as U.S. valuations reach their limits. Investors are now focusing on whether regional markets can maintain this momentum, despite persistent tariff tensions and upcoming elections in several countries.

The MSCI index of emerging market currencies is set to conclude 2025 with gains exceeding 7.2%, partly due to a weaker dollar anticipated from Federal Reserve rate cuts. Stocks are on track for returns above 30% in 2025, reflecting their best performance since 2017. The rally is not solely driven by expectations on the Federal Reserve, as economies with robust fiscal backdrops and policy support have outperformed. A worldwide AI boom has notably propelled South Korean shares up by nearly 76% for their strongest year since 1999.

Meanwhile, the unresolved Russia-Ukraine conflict remains a major concern, causing investor unease. With geopolitical tensions also rising between Saudi Arabia and the UAE, the market sentiment remains fragile. As we move forward, the direction and pace of future monetary policies, particularly in emerging markets, could dictate the next phase of investment returns.

(With inputs from agencies.)