Markets in developing countries showing potential for growth?

Markets in developing countries showing potential for growth?

Emerging markets (EMs) have been underperforming developed markets (DMs) for over a decade, but predictions for their revival in 2025 and beyond are broadly optimistic. This optimism is driven by several factors, including stronger growth in China, favorable commodity dynamics, and growing demand for green transition metals.

China's Catalytic Role

China, the world's second-largest economy, is a key catalyst for EM revival. The International Monetary Fund (IMF) has raised its growth forecast for China to 4.8% for 2025, reflecting stronger-than-expected activity and eased trade tensions due to lower U.S. tariffs on Chinese goods [1]. China's GDP growth in Q2 2025 was 5.2%, and government policy signals suggest a strong commitment to reviving economic momentum despite ongoing trade uncertainties with the U.S. [3].

Commodity Markets and Green Transition Metals

Emerging markets benefit from their commodity exports, particularly as global economic normalization and fiscal stimulus in developed economies support demand. While not explicitly detailed, commodity prices often bolster EM growth prospects, especially for countries rich in natural resources. Furthermore, EMs are increasingly important suppliers of metals essential to the green energy transition (e.g., lithium, cobalt, nickel). The overall positive EM outlook is supported by structural growth drivers, including the global push towards sustainability and clean energy technologies, which favor investment and demand for these metals [3].

Investor Sentiment and Market Performance

The MSCI Emerging Markets Index outperformed major benchmarks with a 15.6% return in the first half of 2025, amid a weaker U.S. dollar, improved fiscal positions, and reforms enhancing governance and economic frameworks in EM countries. This performance signals increasing investor confidence in EM equities relative to U.S. markets, which face higher market volatility and political uncertainty [2].

Risks and Uncertainties

Despite the optimism, risks persist—especially from fragile global trade policies and the potential for new tariffs which could affect countries like Brazil negatively. The IMF notes downside risks remain significant due to lingering trade tensions and geopolitical uncertainties [1].

In conclusion, the revival of emerging markets in 2025 is expected to be underpinned by stronger Chinese growth, stable or improving commodity demand including for green transition metals, and improved investor sentiment reflecting better fundamentals and governance reforms in EMs. However, trade policy uncertainties and geopolitical risks continue to temper the outlook [1][2][3].

Additionally, global interest rates are falling, which could lead to a revival for EMs. However, a weakening currency in EMs can make exports more competitive but may lead to losses for foreign investors. The performance of individual countries within the EM category varies significantly, with some countries like India, Taiwan, and Southeast Asian countries showing promising returns, while others like China, the Philippines, Vietnam, Turkey, Indonesia, and Malaysia have averaged negative returns. India, on the other hand, has expensive capital, which forces companies to be disciplined.

References:

[1] International Monetary Fund (2025). World Economic Outlook Update, April 2025. Washington, D.C.: International Monetary Fund.

[2] MSCI (2025). MSCI Emerging Markets Index Performance, H1 2025. New York: MSCI Inc.

[3] World Bank (2025). Global Economic Prospects, June 2025. Washington, D.C.: World Bank Group.

1. China's commitment to economic revitalization, as indicated by strong GDP growth and government policy signals, could lead to increased opportunities for personal-finance and business savings in the emerging markets (EMs), particularly in real-estate and stock-market investments.
2. Commodity market growth, driven by global economic normalization and increased demand for green transition metals, may bolster the financial returns for EM investors who are investing in countries rich in these resources.
3. The positive performance of the MSCI Emerging Markets Index indicates increased interest from investors in EMs, potentially offering higher returns compared to developed markets, despite ongoing risks and uncertainties in global trade policies and geopolitical scenarios.
4. Although the falling global interest rates could pose benefits for EMs by making exports more competitive, a weakening currency could lead to losses for foreign investors, highlighting the importance of understanding each EM country's unique financial landscape before making investments.

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