Unusual momentum emerging in global equity markets

Fidelity-Emerging-Markets

The backdrop of recent events suggests emerging markets (EM) are staking a claim on global investor attention. In the first half of 2025, EM equities delivered a return approaching 15%, more than double the U.S. equivalents, driven by a growing flight of capital amid U.S. policy unease and renewed confidence in EM fundamentals. That divergence stems not merely from volatility, but from accelerating domestic demand, technological momentum, and the electrification megatrend reshaping sectors from Asia to Latin America.

Vietnam stands out. Structural improvements in manufacturing, regulatory clarity on tariffs, and a quintupling of income per head since 2005 have helped its market rally more than 30% year-on-year, fuelling speculation about its elevation to full EM status and the capital that might follow.

China’s resurgence is also notable. Its weight in EM indices, combined with a rebound in sentiment and an MSCI China ETF up over 30%, suggests that a reassessment of previously sidelined Chinese exposure is underway. Valuations remain appealing, Chinese stocks trade near 13× forward earnings, compared with roughly 22× in the U.S., a gap that has attracted renewed interest from strategists.

Across the board, a declining U.S. dollar is amplifying value in international equities. A 7% drop against a backdrop of slowing U.S. activity and anticipated rate cuts by the Federal Reserve is enhancing returns for non-U.S. investors. A weakening dollar also spurs capital flows into EMs, reinforcing equity momentum.

Corporate earnings reinforce this narrative. MSCI Emerging Markets’ earnings per share rose by 10 per cent last year, with forecasts from JP Morgan pointing toward a 17% gain this year, suggesting the possibility of a virtuous circle of performance attracting further investment.

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.

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