Emerging-market equities are attracting renewed investor attention as a stronger earnings backdrop combines with improving geopolitical signals to support confidence across the asset class.
The MSCI Emerging Markets index has moved to a new high, helped by a shift in risk appetite linked to progress in US-Iran talks and a broader reassessment of earnings strength across developing-market companies.
One important factor is the potential easing of geopolitical pressure around the Strait of Hormuz. The draft framework discussed between Washington and Tehran reportedly includes measures linked to a ceasefire extension, reopening the strait, easing sanctions and releasing frozen Iranian assets. Any durable reduction in disruption risk would be relevant for portfolios exposed to oil-importing economies, as lower energy uncertainty can help reduce inflation pressure and give central banks more flexibility on interest rates.
Emerging markets are often highly sensitive to external shocks. Energy prices, currency movements, dollar strength and interest-rate expectations can all affect valuations. A reduction in geopolitical risk would therefore improve the timing backdrop for investors considering whether emerging-market exposure still offers attractive risk-adjusted potential after recent gains.
Companies in the MSCI Emerging Markets index have, for the first time in four years, reported average annual earnings above expectations set a year earlier. Asian technology companies have been central to that improvement, but the recovery is not limited to one narrow group. Profit momentum has also appeared in areas such as Indian oil refining, Brazilian electricity production, energy companies and financials.
Earnings delivery can help justify higher valuations. A market rally based mainly on multiple expansion can become vulnerable if profits fail to follow. In this case, reported results suggest that at least part of the advance is being supported by improving fundamentals.
Fidelity Emerging Markets Limited (LON:FEML) is an investment trust that aims to achieve long-term capital growth from an actively managed portfolio made up primarily of securities and financial instruments providing exposure to emerging markets companies, both listed and unlisted.
