Emerging markets have been a neglected market sector by investors for a number of years, but they are coming back into vogue. Stock markets and bonds in emerging market countries are benefitting from fresh inflows as investors around the world hunt for undervalued stock opportunities and higher yields.
US dollar weakness, expectations for Fed rate cuts, a commodities boom, and concerns that US stock valuations are stretched have given emerging markets a boost this year. Emerging market economies have held up well, despite concerns that new US tariffs would dampen global economic growth.
The MSCI Emerging Markets Index is up nearly 20% in US dollars for the year to date, outperforming the S&P 500 (up around 11.5%) and the MSCI World Index (up about 14.7%), with both indices expressed in total return terms. The JSE All-Share Index (up 31.8% in dollars), Shanghai CSI 300 Index (up 16.9% in dollars), and S&P Latin America 40 Index (up 28% in dollars) have all enjoyed strong years.
The most recent Bank of America survey shows that 37% of fund managers are overweight in emerging market equities, the highest since early 2023. Close to half of fund managers (49%) believe that emerging market equities are undervalued, compared to a record 91% who see US equities as overpriced.
Analysts predict flows into emerging-market equities will grow faster than their developed-market counterparts. In addition to attractive valuations after several years of lagging performance, analysts cite strong fundamentals and higher earnings growth prospects as reasons for optimism.
Even as debt and deficits continue to climb in affluent-rich countries, policymakers in many emerging markets have adopted more orthodox and market-friendly fiscal policies. Their relative restraint has helped to attract flows back at a time when developed markets are grappling with stretched government finances.
A near 10% decline in the US dollar’s value versus a basket of its peers is also a tailwind – especially with relatively benign inflation in many emerging markets. The weak dollar reduces the cost of borrowing for governments and companies, while allowing central banks to cut interest rates and boost economic growth.
Among key emerging market countries, Brazil is benefiting from improving fiscal sentiment and elevated commodity demand. Latin America as a whole is attractive for investors seeking exposure to resource-rich economies with relatively sound macroeconomic management.
India, meanwhile, has a services-oriented economy, manageable debt, and high interest rates that could help boost its attractiveness as an investment destination. Its stock markets have delivered middling returns this year after a few years of strong performance. However, the US has hit India with high tariffs, which may constrain growth in the months to come.
China, the largest and thus most important of emerging markets, is showing signs of stabilisation as monetary conditions ease and target stimulus comes into play. Continued trade tensions with the US remain concerning, but Chinese policymakers have so far weathered the storm.
South Africa’s Johannesburg Stock Exchange (JSE) has been one of the top performers in the emerging market space this year. The performance of the ALSI, however, can be largely attributed to a more than 105% gain in the precious metals and mining sector. This is a cyclical boom, driven by demand for commodities such as platinum (prices up nearly 50%) this year.
The domestic economy continues to underperform, reflected in lacklustre returns from companies in sectors such as retail, consumer discretionary, and financial services. As such, the stock exchange has decoupled from the performance of the wider economy and remains vulnerable to volatile commodities demand.
Our Currency Decoder suggests that the rand does not currently price in political uncertainty and remains exposed to South African-specific local risk and shocks. Without decisive steps on crime, corruption, infrastructure, and business-friendly market reforms, South Africa is fragile even as other emerging markets boom.
More widely, emerging markets are as exposed as ever to global sentiment. If Fed interest rate cuts materialise, emerging market currencies, bonds, and stocks may benefit from a risk-on environment. But they also remain vulnerable to geopolitical risks and global macroeconomic trends.
Taking the above factors into consideration, the Dynasty Investment Committee is currently evaluating the inclusion of a Global Emerging Markets component within our offshore House-View Funds, or alternatively as a bespoke solution for selected clients.
“Emerging market equities are likely to outperform as they enjoy the tailwinds of easing local monetary policy across most markets boosting domestic lending and consumption, but also a weaker dollar.”
– George Efstathopoulos, a fund manager at Fidelity in Singapore
“If we look at policymakers in emerging markets, they’re conservative, disciplined by the market, and pragmatic.”
– Archie Hart, fund manager at Ninety One
Global News
- Schroders’ economists maintain a positive outlook for global growth despite ongoing challenges. In their quarterly update on Wednesday, they highlighted that global activity remained resilient in the first half of the year despite tariff-related uncertainties, suggesting that current growth forecasts are overly pessimistic. Emerging markets such as India and Brazil could benefit from looser monetary conditions if the dollar weakens further. Overall, Schroders projects global expansion of 2.5% in 2025 and 2.6% in 2026, both above consensus estimates.
- The US economy grew at 3.3% year-on-year in the second quarter, up from an initial 3% estimate, the Bureau of Economic Analysis said yesterday. The figure reflected stronger business investment, which rose 5.7% compared with 1.9% previously reported, led by transportation equipment and the fastest growth in intellectual property products in four years. Trade also provided a significant boost. The rebound followed a first-quarter contraction, with growth expected to moderate as consumers and firms adjust to Trump’s tariff policy.
- Trump’s decision to double tariffs on imports from India, effective Wednesday, threatens growth in the world’s fastest-growing major economy. The duties, reaching as high as 50% on items including garments, gems and jewellery, footwear, sporting goods, furniture, and chemicals, put thousands of small exporters and jobs at risk, particularly in Prime Minister Modi’s home state of Gujarat. An Indian government source said discussions are underway to boost shipments to alternative markets and provide financial support to affected businesses.
- The EU is starting to push through legislation this week to remove all tariffs on US industrial goods. The move meets a demand by Trump in exchange for lowering tariffs on EU automobile exports. The EU will also grant preferential rates on certain seafood and agricultural products, according to sources. While acknowledging the deal favours the US, EU officials said on Wednesday that it provides businesses with stability. While the agreement eases fears of a trade war and strengthens US–EU cooperation, it remains uneven and still requires approval from EU member states and the European Parliament.
- Trump has threatened to impose new tariffs and export restrictions on advanced technology and semiconductors in retaliation against foreign digital services taxes targeting American tech firms. In a social media post on Monday, he claimed the measures were “designed to harm, or discriminate against, American Technology” while “outrageously” exempting China’s largest tech companies. Trump, who has long argued that such taxes unfairly single out companies like Amazon, Google, and Meta, warned that the practice must stop immediately, raising fresh uncertainty over trade relations and tariff policies.
- Chinese President Xi Jinping will host more than 20 world leaders at the Shanghai Cooperation Organisation summit in Tianjin from 31 August to 1 September, in a show of unity among the Global South and support for sanctions-hit Russia. Russian President Vladimir Putin and Indian Prime Minister Narendra Modi are among those attending, with Modi making his first visit to China in over seven years as the two countries work to ease border tensions after deadly 2020 clashes. Russian officials said on Tuesday that Moscow hopes for trilateral talks with China and India during the gathering.
- US companies have announced over $1 trillion in share buybacks as of 20 August, marking the fastest pace of such repurchase plans in history, according to Birinyi Associates data released on Wednesday. The surge, which is dominated by Financial and Technology companies, includes major players like Nvidia, Alphabet, JPMorgan Chase, Goldman Sachs, Wells Fargo, and Bank of America, and reflects strong corporate confidence and a commitment to returning capital to shareholders. Analysts note, however, that the aggressive buybacks could limit funds available for reinvestment in innovation and long-term growth, even as they bolster stock prices in the short term.
- Nvidia reported July-quarter revenue of $46.7 billion on Wednesday, up 56% year-over-year and slightly above analysts’ $46 billion forecast, with net income also exceeding expectations. The results showed a slowdown from last year’s 122% revenue growth and 168% profit surge, and the company issued a cautious outlook, signalling moderating growth after a two-year AI boom. However, CEO Jensen Huang remained confident that AI-chip demand will grow into a multi-trillion-dollar market despite US-China trade restrictions. Nvidia’s stock fell 0.8% on Thursday amid trade uncertainties and its decision to exclude China from its sales outlook. Nonetheless, the S&P 500 and Dow Jones Industrial Average closed at record highs on the day, while AI-linked stocks such as Alphabet, Amazon, and Broadcom advanced, highlighting AI’s continued influence as a key market driver.
- Apple announced it will hold an event on 9 September at its Apple Park campus in Cupertino, California, where it is expected to unveil the iPhone 17, new Apple Watches, and potentially other devices. The invitation to the event, sent to the press on Tuesday, carried the tagline “Awe-dropping”. The event is seen as the company’s most important of the year, with anticipation over its latest iPhone, the company’s biggest revenue driver, and scrutiny from Wall Street on whether Apple continues to innovate, particularly in the era of AI. Apple has introduced new iPhones in September since 2012.
- TikTok owner ByteDance is preparing a new employee share buyback this autumn that values the company at over $330 billion, sources said, citing strong revenue growth. Second-quarter sales rose 25% year-on-year to about $48 billion, largely driven by its China business, helping ByteDance cement its position as the world’s largest social media company by revenue.
- Mercedes-Benz’s pension trust has sold its entire 3.8% stake in Nissan for $324.65 million, a source said on Tuesday. This follows Merc’s announcement of its intent to sell the stock on Monday, leading to Nissan shares closing more than 6% lower, their biggest one-day drop since July. The decline underscored investor doubts over Nissan’s turnaround as it faces tariffs and weak sales in the US and China. The automaker reported a $535 million loss for the quarter ended June.
- As at Thursday’s close the S&P 500 was 0.5% up for the week.
Local News
- South Africa’s rand and equity markets delivered historic gains in August, with the currency strengthening 3% against the US dollar, its best August performance since 2005, and the country’s equity benchmark rising 3.4%, the most in the month since 2006. The rally was driven by a weakening dollar, renewed global appetite for high-yield emerging-market assets, South Africa’s policy reforms, an improved fiscal outlook, stable inflation, and firm commodity prices. Analysts from Rand Merchant Bank highlighted that the surge in terms of trade, buoyed by elevated commodity prices, have underpinned the rand’s strength.
- The AU’s High-Level Panel on Illicit Financial Flows released its “Mbeki II” report on Wednesday, a decade after warning Africa was losing $50 billion annually to illicit outflows. The panel found there was hardly any progress in stemming the tide of illicit financial flows, saying losses may now have doubled amid stalling momentum and political apathy. Citing the Tax Justice Network’s Financial Secrecy Index, it noted South Africa was among four African countries that regressed on financial secrecy between 2020 and 2022. The illegal movement of money, on which no tax is paid, and is sometimes used to finance crime, is among the reasons South Africa was greylisted in 2023.
- ANC treasurer-general Gwen Ramokgopa yesterday dismissed claims that the party’s financial turnaround can be attributed to financing from Iran, insisting instead that its finances have been stabilised by internal reforms rather than questionable foreign contributions. Claims that the ANC was receiving funding from Iran were initially sparked by a former CEO of the South African Institute of Race Relations, shortly after South Africa filed its case against Israel at the International Criminal Court. However, the claim was not backed up by evidence, and data from the National Treasury shows the International Court of Justice case is funded from South Africa’s internal budget.
- South Africa is considering lowering the threshold for its South African Revenue Service (SARS) High Wealth Individual (HVI) tax unit to expand the number of affluent taxpayers it monitors and boost government revenue. Currently, the HVI unit oversees 4,084 taxpayers with gross assets of at least R75 million, including founders, CEOs, trusts, and family offices. Still, the numbers fall short of a separate study by Knight Frank, which shows more than 5,000 individuals with a minimum net worth of $10 million live in the nation. Natasha Singh, director of the HVI unit, said on Wednesday that broadening the base and extending services like dedicated relationship managers could increase revenue collection without resorting to politically sensitive new taxes in a country still balancing its budget since the global financial crisis.
- South Africa is grappling with a significant surge in fraud cases, with reported incidents increasing by 54% in the past year, according to Statistics South Africa’s Victims of Crime Survey released on Tuesday. This rise is attributed to the country’s ongoing challenges in effectively managing crime control measures. The uptick in fraud cases has raised concerns about the efficacy of current crime prevention strategies and the broader implications for public trust and economic stability. The report found that thousands of cases of crime are not reported to the South African Police Service.
- SARS is set to double staff focused on enforcing crypto asset disclosures as part of efforts to collect billions in unpaid taxes. The agency is scrutinising offshore crypto investments, working with the Reserve Bank, and mining transaction data to identify noncompliance. SARS is also reconciling returns, noting that only 17,000 taxpayers previously disclosed crypto, despite an estimated 5.8 million crypto holders in South Africa.
- Chinese locomotive supplier CRRC E-Loco Supply yesterday lost a Johannesburg High Court bid to lift a preservation order on its bank accounts holding R4.1 billion after not appearing in court. It sought to block a pending a forfeiture application by Transnet and the Special Investigating Unit (SIU). The order relates to R25 billion in locomotive contracts awarded to CRRC between 2012 and 2014, which the SIU and Transnet allege were secured through R1.4 billion in kickbacks to companies linked to Salim Essa, who in turn has links to the Gupta family. CRRC, a subsidiary of CRRC Zhuzhou Locomotive, did not appear in court.
- Europe’s escalating defence budgets, expected to rise from 1.8% of GDP in 2024 to 2.4% by 2027, are projected to boost demand for platinum group metals (PGMs) for use in advanced military technologies, according to a recent World Platinum Investment Council report. The EU’s investment in next-generation weaponry and surveillance systems, which rely on PGMs for their conductivity and durability, presents a significant opportunity for South Africa, the world’s leading PGM producer, to expand its market share. While fluctuating global metal prices and competition from other PGM-producing nations could limit these gains, the growing European defence budgets are likely to support stronger demand for South African exports.
- Capitec has become Africa’s most valuable banking group, surpassing FirstRand with a market capitalisation that is R4 billion higher than its rival in a feat previously thought impossible. It now has a share price above R3,600, up from R2.60 at its March 2003 JSE listing. Capitec is now worth more than Nedbank, Absa, and Investec’s South African operations combined. Despite being just 25 years old, the bank has seen its share price rise more than 300% over the past five years, and it now has more than 24 million customers.
- Billionaire Jannie Mouton has offered R7.2 billion to take Curro private, proposing to convert South Africa’s largest private school network into a public benefit organisation. The offer, through his Jannie Mouton Stigting [foundation], is a 60% premium to its pre-announcement price and is subject to regulatory approval. Curro shares surged over 50% on Tuesday following the announcement. Mouton said the deal would remove profit targets and reinvest earnings in bursaries, classrooms, teacher training, and new schools, calling it a “game-changing donation” and possibly South Africa’s largest philanthropic contribution to education.
- As at the time of writing, the rand was 1.8% weaker against the dollar, and the ALSI was 1.2% down for the week.
Sources: Dynasty, Bloomberg, Business Report, IOL Business, BusinessLIVE, AP, CNN, Reuters,etc.
