The case for investing in emerging markets
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The war in the Middle East has pressured emerging markets, but portfolio managers say they still offer opportunities due to better economic fundamentals and falling interest rates. Emerging markets trade at a 40% discount to developed markets, and higher commodity prices reinforce their case, particularly in Latin America.
The war in the Middle East has sent oil prices surging, pressuring emerging markets. However, portfolio managers at Vanguard, VanEck, and BlackRock say emerging markets still offer opportunities. They trade at a 40% discount to developed markets on a forward price-to-earnings basis. Emerging markets outperformed developed markets in 2025, with the MSCI Emerging Markets index climbing 34%. But since the war, momentum has turned back in favor of developed markets. Inflation has fallen to historic norms across much of the developing world, pushing real interest rates to high levels. Central banks are beginning to cut rates, which could feed into economic acceleration. Latin American markets remain underrepresented in global portfolios. Interest-rate cutting cycles are underway in countries like Brazil, Mexico, Peru, and Chile. Portfolio managers highlight Brazil and Colombia as markets with potential for growth, due to their exposure to commodities and depressed valuations.
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