Emerging Markets: A Resilient Asset Class in a Changing World

Attractive Valuations and Solid Fundamentals

Investors had once overlooked them, but emerging markets are now back on the radar of active managers. According to Pierre-Henri Cloarec, CFA and manager of Emerging Sustainable Stars Equity strategies at Nordea Asset Management, this renewed interest is not just a matter of catching up, but a fundamental recognition of their potential.
The weakening of the dollar, moderation of global inflation, and decline in US rates are changing the dynamics. Emerging market currencies are gaining breath, balance sheets are improving, and capital flows are returning. However, the valuation discount remains striking: the MSCI Emerging Markets Index is trading at nearly a 30% discount compared to the MSCI World Index. This gap is increasingly difficult to justify given the quality of balance sheets and the level of returns.
The fundamentals indeed argue for a reassessment. Emerging economies exhibit, on average, GDP growth two to three times higher than developed countries, lower public debt, and abundant foreign exchange reserves. Many local companies, now better governed and more profitable, have reduced their reliance on foreign capital.
These characteristics provide emerging markets with structural resilience in a world where economic fragmentation and trade tensions are reshaping supply chains.

India, Latin America, and Asia at the Forefront

India is in the spotlight. Its tax and administrative reforms, digital transition, and infrastructure programs are supporting annual growth between 6% and 7%. The finance, real estate, and domestic consumption sectors are directly benefiting from the rise of a dynamic middle class.
Latin America, on the other hand, is appealing in the long term due to its reasonable valuations and the quality of its corporate management. Despite unstable political regimes, the region has a major asset: companies capable of growing faster than their domestic economies, particularly in energy, mining, and technology.
In Asia, Taiwan and South Korea are capitalizing on their leadership in semiconductors and artificial intelligence, areas that have become strategic for global economic security. In Eastern Europe, Poland is establishing itself as an industrial and logistics hub at the heart of the European framework, supported by EU structural funds and German equipment spending.
These growth hubs are based on future-oriented sectors: technology, healthcare, sustainability, consumption, and financial inclusion. In several countries, banking is rapidly expanding, paving the way for a boom in credit and domestic investment.

Diversification Has Become Essential Again

Beyond performance, the resurgence of emerging markets highlights a strategic shift: investors are now seeking performance sources that are decoupled from Western cycles.
In an environment where US valuations are reaching new heights and European growth is faltering, emerging markets are once again becoming a diversification tool. Fund managers are favoring an active and selective approach, focusing on governance, sustainability, and balance sheets. Nordea AM's Sustainable Stars funds align with this strategy by identifying the most environmentally and socially responsible companies.
The goal is not just to seek returns; it's about tapping into internal economic dynamics (urbanization, digitalization, energy transition) that are less dependent on the global situation. These markets are no longer mere satellites of US growth, but autonomous engines in a fragmented global economy.
According to Pierre-Henri Cloarec, “the rise of emerging markets is not a temporary phenomenon; it reflects the structural evolution of the global economy toward sustainable economic multipolarity.”
In a world of transitions—energy, technology, geopolitics—emerging markets serve as an anchor. Their resilience and capacity to generate growth amid uncertainty make them a balanced pillar for long-term portfolios.