Market Updates

Emerging Markets Update

Emerging market (EM) stocks, as tracked by the MSCI Emerging Markets Index, have shown resilient performance year-to-date (YTD) through May 2, 2025, with a gain of approximately 4% in USD terms, outperforming the S&P 500’s -5% return (2). This follows a decade of underperformance relative to developed markets, driven by factors like China’s economic slowdown and U.S. dollar strength (1). The 2025 YTD rally marks a notable reversion, with EM stocks benefiting from diverse regional dynamics and global economic shifts. Regionally, Latin America and Eastern Europe led performance, with Latin American equities up 20% and EMEA (Europe, Middle East, Africa) markets gaining 7% (5). Standout markets include Mexico (+10%) and Poland (+30–35% range), driven by domestic revenue streams less exposed to U.S. tariffs (7). China, a significant EM constituent, posted a 9.5% YTD gain, supported by fiscal stimulus expectations, while India rose 1.5%, tempered by high valuations (6). Taiwan, driven by AI-related demand for semiconductors, saw strong contributions from companies like TSMC, though its YTD performance weakened recently (-16.4% for TSMC) due to geopolitical risks (8). Key drivers include a weaker U.S. dollar outlook, which historically boosts EM returns, and anticipated Federal Reserve rate pauses, reducing pressure on EM currencies (4).

The AI supply chain, particularly in Taiwan and South Korea, has been a tailwind, though recent competitive pressures from Chinese AI firms like DeepSeek pose risks (9). U.S. tariff policies under the Trump administration, implemented in early 2025, have created mixed effects, benefiting domestically focused EM markets like Mexico while challenging export heavy economies (7). Valuations remain attractive, with EM stocks trading at a 45% discount to the S&P 500, a record high (3). Looking forward, EM performance will hinge on U.S. monetary policy, trade developments, and China’s economic stabilization efforts. While macro headwinds like tariffs persist, stock selection in high-growth sectors like technology and consumer discretionary offers alpha potential (9). The heterogeneous nature of EM markets underscores the need for diversified exposure to capture upside while managing volatility.

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References:

  1. AllianceBernstein. (2024, February 2). Rethinking three misconceptions about emerging-market equities. https://www.alliancebernstein.com
  2. @charliebilello. (2025, March 30). Big reversion to the mean so far this year. https://t.co/6g01azFj1R
  3. East Capital. (2024, December 15). Outlook 2025: Trends shaping emerging and frontier markets. https://www.eastcapital.com
  4. Invesco. (2025, March 6). A brighter season for emerging market stocks may be ahead. https://www.invesco.com
  5. @KleimanIntCon. (2025, April 29). Emerging markets end April performance sweepstakes. https://t.co/
  6. @KleimanIntCon. (2025, May 1). Emerging markets stock index @MSCI 4 mo core +3.5%. https://t.co/
  7. NerdWallet. (2025, May 1). Investing in emerging markets: ARGT, KTEC and more. https://www.nerdwallet.com
  8. Securities.io. (2025, April 30). Top 5 high-growth stocks to watch in emerging markets (2025). https://www.securities.io
  9. State Street Global Advisors. (2025, February 6). 5 emerging market wildcards for 2025. https://www.ssga.com
Dr. Jeffrey Kastner, Chief Investment Officer at Roan Capital Partners – Experienced fee-only fiduciary wealth advisor in Tennessee

Written by: Dr. Jeffrey Kastner, DBA, CIMA, CTFA, CIS, Chief Investment Officer

Dr. Kastner brings academic rigor and real-world investment expertise to every client relationship. His doctorate in business administration combined with extensive professional credentials ensures your investment strategy is grounded in both theory and practical market experience.

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