Emerging markets entered the second half of 2025 with an unusual mix of strong equity performance and persistent underpricing. Despite delivering a standout quarter, these markets remain heavily discounted relative to developed peers.
In Q3, the MSCI Emerging Markets Index rose 10.6% in US dollar terms, ahead of most major developed market benchmarks. Yet even after this move, the valuation differential widened. Forward price‑to‑earnings multiples remained about 35% below those of developed markets, the largest gap seen since the global financial crisis.
Valuation dispersion at this scale has historically preceded sustained periods of relative outperformance. The third quarter also marked a turning point in global monetary conditions. The US Federal Reserve cut rates for the first time since 2023, reducing pressure on emerging market currencies and improving funding conditions for both corporates and sovereigns.
Countries such as South Korea and Peru delivered double‑digit returns, supported by stabilising trade dynamics and improved local sentiment.
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.
