Emerging markets investment trusts are benefitting from significant tailwinds as investors reallocate some of their portfolios away from the US. Last week the US dollar hit a three-year low, while the MSCI Emerging Markets index is currently sitting at a three-year high and has outperformed the MSCI World index so far this year.
Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), said: “Despite the tariff turmoil and uncertainty of the Trump presidency, emerging markets are generally having a good year, supported by the trend to rotate out of US markets, while a weaker dollar is helping those economies that export goods to the US.”
We asked emerging markets investment trust managers about the impact of Trump’s presidency, how they were benefitting from a weaker dollar and the opportunities and risks on the horizon. Their responses are collated below.
What impact is the weaker dollar and Trump’s presidency having on your trust?
Jacqueline Broers, Joint Portfolio Manager at Utilico Emerging Markets Trust, said: “Trump’s presidency and his frequent policy U-turns are creating noise in the markets, making it challenging as a manager to have any certainty. This noise, however, is positive for emerging markets. Firstly, it is deterring foreign investors from investing in US markets. Capital is therefore looking for new investment opportunities, primarily in Europe, but with flows now starting to be directed to emerging markets.
“Further, a weaker dollar is positive for emerging markets – it helps reduce the cost of imports and therefore weakens imported inflation. As inflationary pressures have reduced, many emerging market central banks are now able to cut interest rates ahead of the US Federal Reserve, which continues to hold rates steady. This reduces the cost of financing and thus the cost of capital for emerging markets, all of which benefits valuations.”
Austin Forey, Co-Manager of JPMorgan Emerging Markets Investment Trust, said: “A weaker US dollar, which now looks to be happening as investors re-evaluate the attractiveness of US assets amid tariffs and changes in relative growth expectations, typically benefits emerging markets. US dollar weakness helps alleviate some of the negative effects from tariffs on emerging market goods, supporting the outlook for the trust. While tariff-related uncertainty remains, this dynamic provides a meaningful counterbalance.
“Emerging markets have long offered a compelling mix of diversification and growth potential. Despite geopolitical challenges, structural factors such as favourable demographics, urbanisation and rapid digital adoption underpin their long-term potential.”
Loong Lim, Investment Director at WhiteOak, manager of Ashoka WhiteOak Emerging Markets Trust,said: “On a net basis emerging markets tend to benefit from a weaker dollar as oil and gas as well as other items, which they import and tend to trade mostly in dollars, become cheaper. The external debt-to-GDP also becomes cheaper to service.
“Trump is neither good nor bad for emerging markets. He appears to be very transactional in nature and the US is heavily dependent on emerging markets for labour and a number of critical technologies or parts, most of which cannot be reshored back to the US. It may become a give and take relationship, with some of the emerging markets gaining and some losing out. But on a net-net basis we do not see much of a change.”
Chris Tennant, Co-Portfolio Manager of Fidelity Emerging Markets, said: “A weaker US dollar has been an important driver for emerging markets this year, and whilst this is one contributing factor, it is not the only one. Some easing of trade tensions, renewed focus on technological innovation, and relatively cheap valuations are amongst other reasons emerging markets have outstripped the MSCI World index so far this year. Tariff announcements have led to heightened volatility in equity markets, but Fidelity Emerging Markets has the ability to go both long and short which helps us to capitalise on these dislocations.”
Emily Fletcher, Co-Manager of BlackRock Frontiers Investment Trust, said: “A number of the countries we focus on are net importers of capital, typically running current account deficits and relying on external funding to support domestic growth. In that context, a weaker US dollar can be beneficial – particularly if it translates into lower funding costs or supports stronger export growth from these economies.
“That said, one of the key advantages of frontier markets is their lower correlation with the US and broader emerging markets. Frontier markets are more influenced by local developments – such as housing policy in the United Arab Emirates, or casino regulation in the Philippines. These local dynamics play a much larger role in driving returns. As a result, we don’t place too much emphasis on the direction of the US dollar. Instead, we focus on analysing the domestic political and macroeconomic trajectory of individual countries, which tends to offer more insight into future equity market performance.”
Are you seeing increased demand as investors get cold feet about the US market?
Jacqueline Broers, Joint Portfolio Manager at Utilico Emerging Markets Trust, said: “Investor interest in emerging markets is increasing as the demise of US exceptionalism mounts, especially from foreign investors who would traditionally direct their focus towards the US. While European markets have been the biggest beneficiary over the last six months, momentum in emerging markets is expected to continue improving as capital looks for new investment opportunities outside the US.”
Loong Lim, Investment Director at WhiteOak, manager of Ashoka WhiteOak Emerging Markets Trust, said: “Yes, whenever prospects for the US market and economy don’t appear as strong, we see increased interest towards emerging market strategies on the back of their superior growth characteristics.”
Chris Tennant, Co-Portfolio Manager of Fidelity Emerging Markets, said: “In recent years, the asset class has experienced challenges due to underwhelming performance and shifts in asset allocation. However, a large part of what drove a de-rating of emerging markets versus developed markets over the last five years has now started to reverse and that is making the sector more attractive.”
What markets in particular are you positive about and why?
Emily Fletcher, Co-Manager of BlackRock Frontiers Investment Trust, said: “First, we see compelling opportunities in select smaller markets such as Turkey and Pakistan, both of which are emerging from significant economic adjustment programmes. Progress on fiscal consolidation, falling inflation and the start of interest rate cuts point to a potential recovery in domestic activity.
“Second, we favour countries that are strategically positioned amid ongoing geopolitical fragmentation. The United Arab Emirates, for example, benefits from its central time zone, enabling trade with both East and West, and is rapidly consolidating its role as a regional financial hub. Lastly, valuations across the frontier universe remain highly attractive. On both absolute and relative metrics, these markets are trading at deep discounts to developed peers – offering a strong entry point for long-term investors.”
Jacqueline Broers, Joint Portfolio Manager at Utilico Emerging Markets Trust, said: “Two markets that we are positive on are India and Brazil. India is relatively well placed in a global context, differentiated as a domestically driven economy and sheltered to some extent from deglobalisation, whilst it is also an opportunist beneficiary of the geopolitical fall out between the US and China.
“It is also well placed from a policy perspective – the combination of a stronger rupee and an alleviation in food price inflation has enabled the Indian central bank to start cutting rates. According to the World Bank, Modi’s vision to bring the country to high income status by 2047 will require a minimum annual GDP growth of 7.8% over the next 22 years, underscoring the need for crucial reforms which should strongly support sectors we invest in.
“We are particularly positive about Brazil. The market is trading at historically low valuation multiples and remains under-owned by both local and foreign investors. Yet Brazil is our most significant geographic exposure – not because of the macro story, but due to the exceptional companies we have identified. These are sector leaders tackling critical infrastructure bottlenecks in areas with limited competition, offering compelling long-term value.”
Austin Forey, Co-Manager of JPMorgan Emerging Markets Investment Trust, said: “While tariffs are negative across the board, economies such as China, India and Brazil with large internal markets could be more defensive and are likely better placed to provide domestic stimulus.
“India benefits from rapid economic growth, urbanisation and a growing middle class, while Brazil’s financial sector is undergoing digital transformation with strong companies like Nubank driving growth.
“Meanwhile, Mexico’s market offers relative defensiveness, aided by the USMCA trade agreement, with high-quality names like Banorte and FEMSA showing resilience. Additionally, our exposure to Taiwan’s AI infrastructure leaders like TSMC and Delta Electronics further diversifies growth opportunities, reinforcing our positive outlook on markets positioned at the intersection of technological advancement and financial transformation.”
Chris Tennant, Co-Portfolio Manager of Fidelity Emerging Markets, said: “From a geographic perspective, the strategy has established overweight positions in Indonesia, which offers similar demographic advantages to India but at substantially more attractive valuations. We are also overweight Mexico, which is positioned to benefit from near-shoring trends and is trading at decade-low multiples. Looking ahead, we believe the strategy is positioned to capitalise on a plethora of opportunities, and we maintain a positive outlook for the next 12 months.”
What are the biggest risks for emerging markets this year and beyond?
Jacqueline Broers, Joint Portfolio Manager at Utilico Emerging Markets Trust, said: “There are a number of risks, however the biggest is Trump and the uncertainty that he is creating both on a macroeconomic and geopolitical level.
“The economic uncertainty that he is creating via global tariffs is making it difficult for companies globally to plan and make investment decisions. This is subsequently putting downward pressure on not only US growth but also global growth. Until China is able to stimulate domestic consumer consumption and improve consumer confidence, China will remain in a challenging position, while near-term resolutions to the conflicts in Ukraine and the Middle East are unclear, all adding further risk dynamics.”
Austin Forey, Co-Manager of JPMorgan Emerging Markets Investment Trust, said: “Reciprocal tariffs present a significant headwind to global growth which will have ongoing implications for US deficits and therefore on the trajectory of the US dollar, global trade, and emerging markets.
“Until the trajectory of growth and inflation in developed economies becomes clearer, much anticipated interest rate cuts for emerging markets are likely to be delayed. However, a weakening US dollar offers support by easing debt burdens and boosting exports, providing emerging economies with some resilience. In this environment, active management becomes especially valuable by pinpointing companies that can outperform regardless of short-term risk.”
Chris Tennant, Co-Portfolio Manager of Fidelity Emerging Markets, said: “In today’s environment of geopolitical and tariff uncertainties, investors are wary of short-term wobbles. A highly active approach to investing in emerging markets is essential. Whilst there are risks, the portfolio’s enhanced long/short toolkit is important. On the long side, we continue to prioritise high return, well-capitalised companies that are returning cash to shareholders – quality attributes that should offer resilience. On the short side, we find opportunities by actively targeting structurally challenged businesses, supporting our ability to benefit from both the winners and the losers across the emerging market universe.”
