Understanding Emerging Markets: A 2025 Perspective

What are emerging markets — and why do they matter more than ever?

The term "emerging markets" refers to a broad and diverse group of economies that are at various stages of economic development. But the definition extends beyond income levels. It also includes factors such as capital market accessibility, regulatory frameworks, and investor participation. That’s why high-income economies like Taiwan and South Korea are still classified as emerging alongside lower-income countries like Pakistan.

Despite the wide differences, these countries share a common thread: they are dynamic, rapidly evolving, and represent a growing share of the global economy.

Key Points

1. A Diverse and Underappreciated Opportunity

• Emerging markets now account for 50% of global GDP and are expected to hit 60% by 2030.
• They have contributed two-thirds of global economic growth in recent years.
• Despite this, they represent only 6–8% of global equity benchmarks, leaving them severely under-owned by global investors.

2. The Lines Are Blurring

• Many emerging markets are now global leaders in innovation, particularly in semiconductors and AI.
• Taiwan and Korea are central to the AI supply chain.
• China’s share of global patent activity has jumped from 1% to 10% since 2010.
• Meanwhile, developed economies face slower growth, ageing populations, and rising debt.

3. Resilience and Reform

• Emerging markets have historically been vulnerable to currency swings and global capital flows.
• However, many are now better equipped to handle volatility due to:
  • Improved foreign exchange reserves
  • Reduction in dollar-denominated debt
  • Stronger domestic investor bases, particularly in countries like India
  • Pro-market reforms across regions such as Southeast Asia, Brazil, and China

4. Rethinking Risk

• Trade tensions and geopolitical shifts are not necessarily threats — they create new opportunities.
• The end of multilateralism and rise of multipolarity is allowing countries like Vietnam and India to thrive under the “China+1” supply chain strategy.
• Fragility and corruption are still concerns, but strong governance-focused investment strategies are helping mitigate those risks.

5. Valuations and Turning Points

• EM equities are trading at a significant discount to developed market peers — some at just 9x forward earnings, compared to 18–20x in premium markets.
• After a “lost decade” of underperformance, the tide may be turning:
  • The US dollar has weakened
  • Earnings growth and return on equity in EMs are starting to outpace developed markets
  • Capital flows into EM equities are rising — a sign of renewed confidence

Conclusion: Why Investors Should Pay Attention

Emerging markets are no longer simply “developing” — they’re redefining the future of global growth, innovation, and supply chains. While risks remain, the blend of structural reform, favourable valuations, and global shifts suggests that EMs could be one of the most asymmetric and overlooked investment opportunities of the next decade.