Emerging Markets Surge: A 15-Year High Returns

Emerging markets have achieved a remarkable resurgence in 2025, with their stock indexes surging approximately 30% and significantly outperforming developed markets, including the U.S. This performance marks the most compelling investment outlook for these regions in nearly two decades, according to portfolio managers. The positive trend is projected to extend into 2026, buoyed by a fundamental shift in market dynamics and improved country-level performance.

Experts highlight a "year of change" in 2025, noting the end of a 15-year period dominated by developed markets and the U.S. dollar's weakening. Specific countries like Greece, Chile, and the Czech Republic have seen substantial gains, with Greece set for developed market status in September 2026. China and South Korea are also cited for positive changes, including the emergence of AI challengers and corporate governance reforms, respectively.

A crucial factor driving this shift is the narrowing of net issuance, or dilution, in emerging markets, particularly China, which has historically been a drag on performance. This trend, coupled with increased buybacks and a move towards higher dividend payouts, is transforming a former headwind into a potential tailwind. Investment banks like JP Morgan are now overweight emerging markets, citing attractive valuations, currency movements, and favorable economic growth trajectories.