(Bloomberg) – Some investors bet that a good era for emerging markets is only just beginning as they increase the appeal of asset classes, which have long struggled concerns about the US economy.
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To promote a shift is to hope that President Donald Trump’s tariff policies will strain US growth and force traders to look abroad.
The move has already caused a run for EM stocks, with gauges set in the first quarter, the highest since 2019. The weak dollar helped lift the index of development currency at nearly 2% this year, but local bonds are also rising.
“In the past few years, investors have accumulated in US assets and more developed markets,” said Bob Michele, global bond head at JPMorgan Asset Management. “Looking at the ratings now, emerging markets look cheap.”
Emerging market investors have seen the percentage of false dawn over the past decade. This is because US stocks left their competitors during the dusty period. Recently, the Treasury yields of decades have given investors little reason to venture outside the US, causing a surge in dollars that rattle currencies around the world.
The fate of the current rally could be tied to the growth trajectory of the United States. Investors say tariff-induced cooling for the world’s largest economy, which cuts yields and cuts the dollar, is ideal, unless snowmen snowball into a notable slowdown that kills the market’s appetite. Many also hope that if the US spews it will significantly increase European spending and further stimulus packages in China.
Bullian investors also point out that assets in many countries are cheap on a variety of metrics, with stocks in developing countries close to the lowest levels compared to the S&P 500 since the late 1980s. The inflow of net assets to net assets has yet to change positively in 2025, and emerging markets have been undervalued in many portfolios after years of weak performance. This could lead to stocks, bonds and currencies rising as the shift accelerates.
“US-Exceptionism-Trade has a long way to go to run,” an analyst at Ashmore Group wrote earlier this month. “This asset allocation shift could be a decade-long trend, taking into account the enormous overexposure of global investors into U.S. stocks.”
I’m looking for gloves
Edwin Gutierrez, EM Sovereign Debt Director at Aberdeen Group Plc, said investors over the past decade and a half have “wanted in vain” in a scenario where US growth is slower, but not sharp enough to cause a risk-off mood.
Still, he has bought bonds and currencies from emerging European countries after maintaining years of allocation to regions below the weighting of corporate benchmarks.
“Trumpnomics presents perhaps the most authentic challenge to American exceptionalism we’ve seen,” Gutierrez said.
Axel Christensen, strategist at BlackRock Inc. and Laurent Developer, portfolio manager, said Latin America offers a bright spot as it narrows down performance gaps with the rest of the globe. “Temporary weaknesses due to trade uncertainty” will be an opportunity to buy local EM bonds, they added.
Funds, including TCW Group and T. Rowe Price, have scooped up sovereign notes in Colombia and South Africa, touting higher liquidity and market access. Franklin Templeton’s new low-volatility global bond fund has purchased hard currency debts from Indonesia, the Philippines and South Korea.
Carmen Altenkirch, an analyst at Aviva Investors in London, said: She noted that extra yield investors who require ownership of EM hard currency debts than the US Treasury Department remain relatively stable compared to the same measure for peers in many developed markets.
Most emerging currencies are rising against the dollar this year, with Brazil, Chile and Colombia being one of the biggest winners. Even the Mexican peso, particularly vulnerable to tariff headlines, attracts buyers. The currency has grown 3% since the start of the year, and hedge funds are the most bullish since August.
What a Bloomberg strategist says:
“As value comes back to stock growth, the same dynamics could move to Forex, at least selectively based, especially if you have cheaper currencies that offer high real yields like COP, PHP, INR.”
– Macro strategist Mark Cudmore
Many factors could derail these transactions, including the US economy, which proves resilient in the face of trade wars and tariffs that are less severe than fear. According to a report by Bank of America, which cites EPFR data, some investors appear to be betting on such outcomes.
Eric Souders, portfolio manager at Payden & Rygel, hasn’t taken a chance. His fund holds positions such as Vietnamese bonds and Mongolian bonds, but has raised its cash holdings to the highest level since 2022 in case the US rarizes.
But for now, “I think EM looks pretty good,” he said.
– Support from Carolina Wilson.
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