Growing global uncertainty around company valuations, monetary policy and business cycles is prompting investors to rethink their asset-allocation strategies – and emerging markets (EM) are ideally placed to benefit. Across EM, a number of factors are combining to create compelling diversification opportunities in both equities and fixed income.
Allocations to EM equities have in the past tended to treat the asset class as a single, relatively undifferentiated entity. For many years, investing in emerging markets equities often meant investing in the China growth story. Today, that picture is far more nuanced. Across the EM universe, returns are being driven by a wide range of distinct themes, from artificial intelligence (AI) and advanced manufacturing to the energy transition, creating a richer and more diversified opportunity set for investors.
EM debt, meanwhile, has matured considerably and has transformed from the volatility of the 1990s into an asset class characterized by strong fundamentals, disciplined policy mixes and effective structural reforms. In both equities and fixed income, valuations are cheap relative to most developed markets – and investor allocations remain low.
So why do EM assets continue to be underrepresented in investor portfolios? In part, this is the result of historic attitudes towards EM stocks and bonds that were formed during the various crises of the 1990s and early 2000s. Many investors still believe that emerging markets are inherently unstable – but the reality is quite different. In recent years, EM assets have demonstrated high levels of resilience during periods of volatility.
At the same time, the countries that make up the EM universe are playing a more central role in driving global growth. Recent research from S&P Global suggests that emerging markets will be responsible for as much as two-thirds of world GDP by 2035.
In an increasingly uncertain investment landscape, assets that have traditionally been seen as safe havens – such as gold, US Treasuries and the US dollar – no longer appear to offer the same level of security. Diversification offers investors the chance to de-risk their portfolios, and this is where EM equities and debt have valuable roles to play.
EM equities: taking advantage of structural growth drivers
The EM investment universe features a large and growing number of companies which are global leaders and that not only boast stronger balance sheets than many of their peers in developed markets, but also have significantly higher levels of profitability. Meanwhile, EM equities continue to trade at a considerable discount to those in the US and Europe: earlier in 2026, EM stocks were trading at around 12 times earnings compared to approximately 20 times in developed markets.
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