Emerging markets are surging amid legitimate optimism

Arabian Post

3 days ago

Emerging markets are pushing higher again, and this time, the momentum isn't misplaced.
Behind the move is a growing body of evidence that the world's most dynamic developing economies are demonstrating real economic resilience, despite a chaotic external backdrop.
For investors, it's a signal that deserves immediate attention.
ADVERTISEMENT
The surge in sentiment has been supported by improved financial market conditions, stronger currencies, and narrowing bond spreads.
Business surveys across Asia, Latin America, and parts of Africa are showing signs of renewed confidence. Equity inflows are rising, and most importantly, this isn't happening in a vacuum.
Domestic demand in key economies, such as India, Brazil, China, is holding up under pressure. Investment pipelines are active, consumption is steady, fiscal authorities are continuing to support internal growth engines while inflation stabilizes, and central banks in these markets have, in many cases, built credibility by managing monetary conditions proactively. This combination is drawing capital.
None of this implies that the broader global environment is benign. The OECD has just downgraded its global growth forecast. Trade uncertainty, partly driven by the United States' renewed tariff regime under President Trump, remains a persistent threat.
But emerging markets are proving they're not passive players in this story.
ADVERTISEMENT
Some are less directly exposed to the US economically. Others are adapting in ways advanced economies haven't yet matched.
In recent months, we've seen evidence of supply chain diversification, targeted currency interventions to manage volatility, and increasingly localized energy transitions in countries where energy policy isn't caught in political paralysis.
There's also the dollar dynamic. A softer US dollar is offering emerging markets a window. Dollar denominated debt burdens are easing, allowing governments and corporates to service obligations more efficiently.
For international investors, this reduces repayment risk and boosts the appeal of local-currency bonds and equities in markets that had previously priced in excessive external pressure.
Sentiment has also improved following the partial rollback of Trump's 'Liberation Day' tariffs.
While uncertainty remains, the retreat from some of the most punitive measures has eased concerns over a sudden shock to global trade flows. For emerging markets, this shift has meant more than just an improvement in headline risk. It's reopened space for asset repricing.
We've already seen this reflected in EM bond spreads, which have tightened against US Treasuries in recent weeks.
Currencies that had been under pressure, like the Brazilian real and the Indian rupee, have regained footing. This is the market acknowledging that fundamentals in many of these economies remain intact despite the noise coming from Washington and other developed capitals.
What stands out most is the policy contrast. In several advanced economies, monetary and fiscal tools are constrained—either by debt ceilings, political deadlock, or inflation expectations.
In many emerging markets, those tools remain available. Central banks in Latin America, for instance, have already raised rates and created room to cut. This puts them in a stronger forward position than many G7 peers.
At the same time, energy policy in emerging markets is moving in a clearer direction. While the US retreats from its green energy commitments, countries from Southeast Asia to Sub-Saharan Africa are pushing ahead with clean and affordable energy solutions, often backed by multilateral institutions and regional partnerships.
These transitions are unlocking new capital flows and investment themes that are only beginning to be priced in.
Supply chain resilience is another factor driving structural reallocation. With multinationals under pressure to diversify away from single-country dependencies, emerging markets—especially those with political stability, labour depth, and infrastructure readiness—are stepping in.
Investors who view EM exposure as a high-volatility add-on to a developed market core may miss the point. The current rebalancing is more fundamental. It's about aligning with growth, where it's available, and stability, where it's being actively built. Yes, risk remains—and always will.
However, the return outlook in real terms, adjusted for inflation and currency, increasingly favours selectively chosen EM allocations over a blanket overweight to legacy markets.
Of course, not all emerging markets are positioned equally. Countries with fragile current accounts, poor governance, or inconsistent monetary policy remain vulnerable to external shocks.
yet those with strong domestic demand, manageable debt loads, and credible institutions are showing they can manage global volatility with greater confidence than they could a decade ago.
What's clear is that investors need to rethink the way they approach these regions. EM exposure should no longer be treated as peripheral or tactical. In a world where policy in developed economies is becoming more reactive, EM policy—where credible—is increasingly strategic.
The opportunity now lies not in riding a risk rebound, but in identifying where long-term value is emerging ahead of full recognition.
This requires active allocation with solid financial advice, a close understanding of political and monetary developments, and an appreciation for the growing role these economies play in global capital markets.
Nigel Green is deVere CEO and Founder
Also published on Medium.
Notice an issue? Arabian Post strives to deliver the most accurate and reliable information to its readers. If you believe you have identified an error or inconsistency in this article, please don't hesitate to contact our editorial team at editor[at]thearabianpost[dot]com. We are committed to promptly addressing any concerns and ensuring the highest level of journalistic integrity.