Emerging Markets Are Back in Focus—And Here’s Why
After years of relative underperformance, emerging markets (EMs) are making a noticeable comeback in 2024. While developed market equities have struggled with high interest rates, stubborn inflation, and geopolitical fragmentation, EMs have benefited from stronger growth fundamentals, favorable demographics, and tech-enabled productivity gains. The MSCI Emerging Markets Index has outpaced the S&P 500 and Euro Stoxx 50 year-to-date, with standout performances from India, Brazil, and select Southeast Asian economies. This trend reversal is being driven by a combination of improving corporate earnings, currency stability, and massive inflows from global funds seeking diversification amid rich valuations in developed markets. In a world of multipolar growth and fragmented supply chains, investors are increasingly realizing that global exposure can no longer be limited to the U.S. and Europe. From digital infrastructure to green energy and consumer technology, EMs are carving out new narratives—and this time, it’s not just about cheap labor or commodities. It’s about structural transformation.
India vs. Brazil: A Tale of Two Growth Engines
India and Brazil are leading the charge, but for different reasons. India is benefiting from a multi-decade demographic tailwind and a digitization boom. The Modi government’s sustained push for infrastructure development, along with reforms in tax, labor, and foreign investment, has made the country increasingly business-friendly. India’s GDP is expected to grow at over 6.8% in 2024, making it one of the fastest-growing major economies in the world. The Nifty 50 and Sensex indices have posted double-digit gains, driven by robust performance in financials, IT services, and consumer discretionary sectors. The rise of domestic retail investors through systematic investment plans (SIPs) and the country’s vibrant fintech ecosystem also provide a cushion against external volatility. Brazil, on the other hand, is being revalued on the strength of commodity exports, fiscal discipline, and renewed investor confidence in the central bank. Brazil’s inflation has cooled faster than expected, allowing for rate cuts that have stimulated credit and consumption. The Bovespa has benefited from a rally in oil, iron ore, and agribusiness. Moreover, Brazil’s growing role in global supply chains—especially in critical minerals and agriculture—makes it a strategic hedge against China-U.S. decoupling. While India represents a structural growth story, Brazil exemplifies tactical macro momentum. A comparative allocation strategy could allow investors to capture both.
Geopolitical Volatility: The Achilles’ Heel of EM Investing
Despite the bullish sentiment, EM investing is inherently riskier due to geopolitical instability. Tensions between China and Taiwan, coups and political unrest in parts of Africa, and populist shifts in Latin America can all have ripple effects across EM assets. Trade fragmentation, foreign policy realignments, and U.S. monetary policy also play an outsized role. A strong dollar, for example, can tighten financial conditions in EMs that rely on dollar-denominated debt. Furthermore, cross-border capital flows are increasingly driven by political considerations—sanctions, export controls, and investment restrictions complicate the picture. Investors must be keenly aware of country-specific risk, especially where the rule of law, central bank independence, or press freedom is under threat. That said, not all geopolitical risks are created equal. Countries like India and Indonesia, which have relatively stable democratic institutions, are better positioned than authoritarian regimes facing internal dissent. The key lies in diversification and selective exposure. Hedging tools such as currency ETFs, sovereign CDS spreads, and EM bond funds with duration control can mitigate shocks. Political risk insurance and ESG risk-screening frameworks are also becoming more common in institutional portfolios. EMs are not monolithic, and understanding the nuanced risk-return profiles of individual countries is essential.
Three High-Growth EM Picks That Deserve Attention
Beyond broad indices, investors looking to capitalize on EM resurgence should consider specific markets that combine economic momentum, structural reforms, and financial accessibility. First, India stands out not just for its macro growth but also for the depth of its equity markets. Companies like Reliance Industries, Infosys, and HDFC Bank provide exposure to telecom, IT, and financial services—sectors with long runways for growth. The recent expansion of India’s GIFT City financial zone and greater MSCI inclusion are improving accessibility for global investors. Second, Vietnam is emerging as a major beneficiary of global supply chain diversification. With wages lower than China’s and a young, tech-savvy population, Vietnam is attracting substantial FDI in electronics, semiconductors, and apparel. The Ho Chi Minh Stock Exchange has gained global attention, and the VN-Index is up over 20% in 2024. Finally, Mexico presents a compelling nearshoring play. The U.S.-Mexico-Canada Agreement (USMCA) has solidified trade ties, and Mexico’s proximity to the U.S. offers logistic advantages amid shipping disruptions in Asia. Industrial REITs, logistics firms, and exporters are thriving, and the peso has remained relatively stable. Together, these three picks offer a blend of demographic strength, trade tailwinds, and market accessibility that aligns with long-term thematic investing.
Smart Diversification: Building an EM-Aware Portfolio
Incorporating emerging markets into a diversified portfolio requires a clear strategy. Historically, EMs have offered high growth potential but also high volatility. The key is right-sizing exposure based on risk tolerance and investment horizon. A typical balanced portfolio might allocate 10–20% to EM equities, with another 5–10% in EM debt, depending on interest rate outlook and credit quality. Within EM equities, investors can choose between broad ETFs like iShares MSCI Emerging Markets (EEM), more targeted funds like iShares MSCI India or VanEck Vietnam ETF, or even actively managed strategies that overweight quality names and underweight state-owned enterprises. Currency exposure should be actively managed—some investors prefer hedged products, while others embrace local currency upside. Sector rotation is also critical. In 2024, tech and industrials are gaining momentum in Asia, while commodities and financials lead in Latin America. EM bonds—especially local currency sovereigns—offer attractive real yields in a disinflationary environment, but credit risk needs close monitoring. Ultimately, diversification doesn’t just mean spreading risk across countries. It also means blending factor exposures—growth vs. value, large-cap vs. small-cap, and public vs. private markets. Emerging markets are no longer a peripheral play—they’re becoming central to global asset allocation.
Conclusion: Opportunity With a Risk Premium
Emerging markets in 2024 represent one of the most compelling yet complex investment opportunities. The outperformance of EM indices is not a temporary anomaly—it reflects deep shifts in global capital, technology diffusion, and economic rebalancing. India, Brazil, Vietnam, and Mexico showcase different pathways to prosperity, each with unique macro drivers and market structures. Yet, investors must never ignore the embedded risks—political, regulatory, and macroeconomic. Building an EM-aware portfolio means being proactive about hedging, informed about local dynamics, and realistic about volatility. In a multipolar world, emerging markets are no longer the shadow of developed economies—they’re parallel engines of growth. With thoughtful exposure and disciplined execution, investors can unlock diversification benefits that enhance both return potential and portfolio resilience in an uncertain global environment.
