Emerging Markets Roar Back: A New Dawn or a Fleeting Mirage?

A World Turned Upside Down?

Ah the markets! A landscape as unpredictable as a chameleon in a bag of Skittles. It appears our financial currents are shifting. Recent reports suggest a growing interest in emerging markets. Now I've seen a thing or two in my time and I must say the notion of investors flocking to these often turbulent waters is…intriguing. As Donald Trump unveiled trade policy slapping tariffs on Sri Lanka Cambodia and Vietnam – I couldn't help but think of the poor leafy sea dragon so easily disrupted by the currents of change.

Tariff Tantrums and Investor Tides

The shadow of tariffs looms large of course. These reciprocal tariffs as they are termed initially sent shivers down the spines of developing economies. Bank of America's Fund Manager Survey however reveals a fascinating twist. Institutional investors those canny creatures seem to believe these tariffs might not hold their ground. It is interesting to see investors are pivoting to emerging markets with allocation to equities from these developing economies now at its highest since August 2023.

Goldman's Green Gamble

Even the giants of finance are joining the fray! Goldman Sachs no less has launched an Emerging Markets Green and Social Bond Active ETF. It’s a venture that may not only yield financial returns but might also contribute to green and social projects. One can only hope that this effort does not end up as just another case of 'greenwashing'. After all as I always say "Environmental change is the single biggest threat to our planet"

The 'EM ification' of Everything!

Archie Hart of Ninety One speaks of the 'EM ification' of developed markets. A rather grand term but it strikes a chord. The economic and central bank policies of emerging markets he argues have been surprisingly pragmatic. Meanwhile developed nations grapple with their own volatile policies. It seems the world is a stage and the actors are constantly swapping roles.

Uzbekistan: The New Kid on the Block?

And where might one find these burgeoning opportunities? Uzbekistan it seems is the belle of the ball. BofA is moving to overweight on Uzbekistan external debt citing high gold prices and progress on energy tariff reform. Even JP Morgan suggests investors switch into the geopolitically stable country. The landlocked nation bordered by five countries including Kazakhstan and Afghanistan has seen average annual GDP growth of 5.3% since 2017 according to the World Bank.

A New Phase or a False Dawn?

So is this a new dawn for emerging markets or merely a fleeting mirage? Only time will tell. As Greg Luken of Luken Wealth Management puts it "Emerging markets have long been the redheaded stepchild of asset allocation... but things are nevertheless changing." India Brazil China and the like may indeed have significant upside potential. One can only hope that these markets follow the principles of nature – diversity balance and sustainability. After all "It seems to me that the natural world is the greatest source of excitement; the greatest source of visual beauty; the greatest source of intellectual interest. It is the greatest source of so much in life that makes life worth living."