An emerging markets supercycle has just begun

Shuli Ren, Bloomberg

Are emerging markets just a one-trick pony? After a stellar 2025, risk-averse investors are getting cautious. After all, this asset class has been an underdog for such a long time. Since 2010, the benchmark MSCI Emerging Markets Index has not outperformed its US counterpart for two consecutive years.

Traders should keep calm and carry on. There are good reasons to believe that emerging markets have entered a yearslong supercycle. The mechanisms that underpinned 2025’s outperformance, such as a weak dollar, benign global economic growth and investors’ desire to diversify internationally, continue to be present. But more importantly, new investment possibilities are opening up following an eventful January.

First, is it time to stockpile commodities? If one consequence of Russia’s invasion of Ukraine is central banks building up gold reserves and diversifying from Treasuries, then President Donald Trump’s oil grab in Venezuela and subsequent threats to take minerals-rich Greenland “the hard way” will only firm up countries’ urge to boost inventories needed for high-end manufacturing, such as robotics and electric vehicles, as well as AI data centers. Indeed, the more bellicose Trump gets, the stronger gold, silver, copper, or nickel rally.

It’s a bullish signal for the resource-rich Global South if everyone wants more of these future-facing commodities. Historically, the stock performance of Chile, the world’s top copper producer, is closely linked to the metal’s price. By the same token, Brazil’s market valuation tracks that of industrial metals and South Africa’s to gold.

Second, new frontiers are emerging. Just two weeks ago, it was inconceivable that Venezuela, once a big borrower in the global sovereign bond market that defaulted on its obligations in 2017 after US-imposed sanctions, could be back in the fold. Now, Wall Street is discussing the possibility of a debt restructuring.

And how about Saudi Arabia, the oil-rich regional superpower that only got upgraded by MSCI to emerging markets status in 2019? In January, the kingdom announced a series of sweeping moves to attract international money flow. Starting February, all foreigners will be allowed to invest directly in the main local bourse. They will also be able to buy property across the country, except for the holy cities of Mecca and Madinah. The Tadawul All Shares Index is up 3.8% year-to-date after a disappointing 2025.

Saudi stocks can get a bigger lift if Riyadh expands its reforms. Currently, only 60% of global emerging markets funds have exposure to the country’s stocks, according to HSBC estimates. Once the 49% foreign ownership limits on individual stocks is removed, Riyadh can expect $25 billion in portfolio inflows, the most since 2019.

Third, global investors’ AI fever has reached emerging markets. China, of course, is dazzling the world with low-cost, open-source large-language models. But equally important, a big chunk of AI’s long, deep and complex supply chain is located outside the Western bloc.

For example, the suppliers for high-bandwidth memory, or HBM — essential to support AI systems like those from Nvidia Corp. — are largely based in South Korea. SK Hynix Inc. is the industry leader, followed by Samsung Electronics Co. and America’s Micron Technology Inc. The benchmark Kospi Index is already up 11.5% this year.

My point is, as an asset class, emerging markets are morphing into an exciting bazaar that offers treasure for everyone. Supply-chain specialists can dig out niche industrial firms; commodity bulls can place their bets on unloved miners; and hot money can rush into frontier markets, having seen what meaningful economic reforms did to countries such as China and Vietnam.

Emerging markets are firing on all cylinders. Have fun exploring.

Courtesy Bloomberg/Shuli Ren