Developing countries’ currencies, stocks and bonds are opposed to conflicts in the Middle East as they are superior to the global market in 2025 in the shadow of a long-standing strong dollar.
The JPMorgan Index, a large emerging market local currency bond, and the MSCI gauge, a stock, have each won around 10% so far this year. In comparison, the MSCI World Index, which covers large stocks in 23 developed countries, has risen by 4.8%, while the FTSE World Government Bond Index has risen by 6.6%.
Despite initial expectations that developing countries will be hit hardest by the World Trade War, these markets have warmed as investors are trying to diversify away from dollar assets amid concerns over volatile US policymaking.
“All of a sudden, it makes local currency debt in emerging markets great again,” said Damien Buffett, Principal Finister’s Chief Investment Officer.
Investors are now returning to a market that previously had a very positive and low rating. Or they offer attractive yields when adjusted for inflation. Despite Israel and the US being hit by Iran, emerging world assets hold profits, which have been increasing oil prices, but so far, falls in broader financial markets have been limited.
According to analysts at JPMorgan, emerging market stocks fell to about 5% of their managed assets in the global equity fund, compared to nearly 8% in 2017.
Even this year, investors are still drawing around $220 billion in nets from emerging market equities and bond funds, according to JPMorgan data. This primarily reflects the amounts withdrawn in April at the peak of concern over the impact of US tariffs on global growth. However, net $11 billion returned in May and June.
“We’re looking forward to seeing you in the future,” said Kevin Daly, co-head of CEEMEA Economics at Goldman Sachs. “Even small influxes have definitely had a disproportionate impact.”
Interest rates in many countries on JPMorgan’s local bond index reached the highest levels in 20 years adjusted for inflation, increasing the appeal of bonds, said Grant Webster, Nine10’s portfolio manager.
Emerging markets also have a tailwind from the weak dollar. Analysts say their central banks have given them more room to cut borrowing costs to help economic growth that supports equities and bonds.
“As emerging market currencies strengthen, there will be more room for central banks to cut,” said Nandini Ramakrishnan, Macrostritesist at JPMorgan Asset Management, creating a “really good environment for stocks.”
Performance is also driven by the growing appeal of China’s technology and other emerging market sectors.
“China leads a lot of high-tech space,” Ramakrishnan said, adding, “One of the long-term structural trends worldwide is technology. It’s probably a good idea to have access to not only the US’s epic seven (Megacup Technology Co.) but perhaps it’s a good idea.”
“As a global investor, people are paying more attention to the innovation and control that comes out of China,” she added.
“For the first time, I have not sold a meeting in China. I am challenging the US from an innovation perspective, from an equity market perspective,” said George Efstathopoulos, multi-asset portfolio manager at Fidelity International.
He added that almost 5% of his portfolio is in Brazilian bonds. He was also bullish in Korea. “It’s been very cheap for a long time,” he said.
They have also endured emerging market gatherings despite rising yields for the US Treasury.
Recommended
The US rise “hasn’t had the negative impact that everything from other dangerous assets – stocks to emerging market local currencies – has had the expected negative impact,” Daly said. “We’ve seen the breakdown of these correlations. The question is why. What we’re looking at is the increase in the inherent risk premiums of the Ministry of Finance.”
The growing concern over the US budget deficit comes as worries about debt positions in several emerging markets have eased.
Max Kettner, chief multi-asset strategist at HSBC, said today’s situation is “a very different story to the 2010s.”
“Previously, “You can’t buy South Africa, you can’t buy Brazil. Look at all of these financial concerns,” he added. “But I will compare them to the US, Japan. The argument of financial concerns is no longer true, as it has the same in the developed market.”
