For much of the past decade, emerging-market equities have sat in the shadows, underperforming developed peers and attracting little sustained capital. That narrative is beginning to crack. One of the clearest signals is the relative discipline many emerging economies showed during the pandemic. While developed markets, especially the US, embraced aggressive fiscal stimulus, several emerging nations maintained tighter controls.
A softer US dollar historically bodes well for emerging markets, and that dynamic is now playing out again. As the dollar eases, local currencies gain room to strengthen, easing imported inflation and improving consumer spending power. For economies that are major commodity exporters, the effect compounds, with dollar-denominated revenues rising in local terms, bolstering earnings potential for listed firms.
At the same time, company-level fundamentals across several markets are beginning to attract attention. Mexico offers a striking example, with domestic companies trading on much lower multiples than their developed-market peers, despite generating most of their earnings from the US. This mismatch presents a clear case for re-rating. Indonesia also stands out, not just for its favourable demographics but for its under-penetrated consumer sectors, which give local companies significant headroom for expansion. In smaller markets like Georgia, regional banks are taking advantage of scale opportunities in neighbouring countries, offering exposure to growth with relatively low investor attention.
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.
