Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.
When President Trump announced a US tariff rate of 50% on goods from India in August, ostensibly for purchasing Russian oil, this took the country to the top of the league table of tariffs alongside fellow emerging market Brazil. They are followed by South-east Asian countries with tariff rates of 40%.
Tariffs of course bring with them new uncertainties but, overall, they do not detract from our positive view of investing in global emerging markets, and we believe in the long-term economic growth story of many of them through such drivers as demographics, an expanding middle class, and deregulation. Our optimism, however, is based on actively managing allocations and stock selections across this diverse and heterogeneous asset class. In addition, we are positive about Asia ex-Japan, which is a separate allocation in our funds and portfolios and has some crossover with global emerging markets, particularly China.
Before explaining why we have a tactical asset allocation (TAA) score of four out of five for global emerging markets equities, for which five is the most positive possible, we will outline their recent performance and the potential impact of tariffs.
Performance and tariffs
Over the five years to the end of August 2025, emerging market equities returned 27.4% in sterling terms compared to 85.3% by global equities and 93.6% by US equities. [1] The drivers of stock market performance obviously vary between emerging markets and the negative ones include the impact of Covid-19, the dominance of US stocks led by the mega caps, economic slowdown in China and a strong US dollar. Emerging market equities have fared better in 2025, with a double-digit return in sterling terms year to date, which places them ahead of the US but behind Europe and the UK. [1]
Emerging markets have benefited from globalisation and the growth in trading and supply chains around the world, but the imposition of tariffs and fragmentation of globalisation are potential headwinds. The International Monetary Fund reduced its forecast for global economic growth because of the tariffs and UBS estimates such a slowdown could result in reduced emerging market earnings of as much as 6% to 9%. [2] The impact, however, will differ between emerging markets. One of the stand-out qualities of India's economy, for example, is the extent to which it is domestically driven and therefore more insulated than most to the current US tariff policy.
Tariffs pose several challenges to emerging markets. First, they can lead to a reduction in exports. For example, Brazil’s and South Africa’s steel and aluminium exports have fallen because of US tariffs. [3] Second, supply chains will be disrupted if companies switch their suppliers from one country to another to sidestep tariffs.
Third, countries that are hit by tariffs can see their currencies depreciate, making imports more expensive and fuelling inflation.
Fourth, tariffs can have sector-specific impacts. For example, export-heavy sectors such as automotives could be hit more than commodities. If ‘added value’ sectors such as the former suffer disproportionately then this will hamper an emerging country’s economic development.
Tariff tensions have de-escalated since they were first announced in April 2025 and the market mood has improved. But the long-term implications of US isolationism and erratic policy shifts are still being assessed.
The positive case
There are several reasons to be optimistic about emerging markets, despite the tariffs and the fragmentation of globalisation. First, emerging markets have shown notable resilience against them. Countries such as India, Brazil and South Africa have maintained strong domestic demand and credible monetary frameworks, helping to offset external shocks.
Second, many emerging markets are demonstrating their dynamism and flexibility by paving ways to new trading partners. They are actively diversifying their relationships, reducing reliance on the US and exploring new markets across Asia, the Middle East and Latin America. Although the US is the world’s biggest importer, it still only accounts for 14% of all global imports [4], so there is plenty of scope to adapt to the new environment.
Third, one of the most compelling arguments supporting emerging market equities is their cheap valuations. Emerging market stocks currently trade close to a 50% discount to their developed market counterparts in terms of price-to-book ratios. [5] This discount reflects both structural inefficiencies and investor caution, but these attractive valuations could potentially feed through into earnings growth that might exceed that of developed market peers.
Fourth, several emerging market countries have been shrewder about their economic management than is often realised. They tamed inflation far quicker than developed markets after the shocks of 2022 and they often have lower reliance on debt. Many emerging market central banks have shifted towards easing cycles, supported by falling inflation and improving fiscal balances. The US Federal Reserve’s rate cuts have also helped to stabilize emerging market currencies, with the resulting weaker dollar trend having made dollar-denominated debt less burdensome. All of this has been conducive to easier financial conditions in emerging markets versus their developed peers.
Finally, in our latest (third quarter) TAA review, we noted that emerging markets were the most improved of any equity sub-asset class in terms of composite scores, including corporate profits, investor sentiment and the underlying technicals.
1 Bloomberg, 1 September 2025
2 UBS Global CIO Daily Update, 3 April 2025
3 ArcelorMittal, 5 June 2025; Insider Chronicle, 11 February 2025
4 Bloomberg, S&P Global, DHL Group, Imports by destination 2024
5 Bloomberg, 16 September 2025
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Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.
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