Emerging markets outperform developed world despite tariff concerns

Emerging markers rally despite global turmoil: Developing economies are posting some of the strongest market gains of 2025 as the winds of US exceptionalism start to turn, defying expectations that trade wars resulting from US tariffs and ongoing conflicts in the Middle East would hit emerging markets particularly hard.

An MSCI share gauge and JPMorgan EM local currency bond index posted gains of roughly 10% this year, nearly double the 4.8% gain seen in developed markets tracked by the MSCI World index, the Financial Times reports.

Driving the turnaround: Weakened confidence in the US on the back of increasingly erratic policy stances have shed a more positive light on emerging markets, and the growing US budget deficit and debt obligations are pulling investors away from US Treasuries, despite favorable yields. A weaker greenback is also easing pressure on central banks in emerging markets, allowing them to lower borrowing costs, helping to boost growth.

This comes after a somewhat rocky start to the year, with USD 22 bn removed from EM shares and bond funds. Some USD 11 bn returned later in May and June, with emerging market local-currency bond funds seeing record inflows in mid-June, Reuters reported, as investors look elsewhere amid lower interest rates in developed markets, a slowdown in global growth, and an anticipated downturn in USD bond yields.

The MSCI Emerging Markets index could gain as much as 3% by June 2026, with domestic-focused businesses better positioned than exporters, Morgan Stanley strategists predict in the 2025 Midyear Investment Outlook. The firm projects India to lead emerging market performance, forecasting 18-20% annual earnings growth over the next four to five years.

The next bull market? Wall Street players like Morgan Stanley Investment Management, AQR Capital Management, Bank of America and Franklin Templeton among those predicting that the tide is turning in favor of EMs — calling them “the next bull market,” — Bloomberg reports citing Bank of America’s Michael Harnett.

Investor bullishness on emerging markets is at a two-year high, with 44% of fund managers expressing optimism, Bloomberg reports, citing a HSBC survey. The consensus view expects emerging market equities to outperform developed markets over the next three months.

MARKETS THIS MORNING-

Most Asian markets are in the red this morning, with Japan’s Nikkei being the only outlier, rising 1%. South Korea’s Kospi lost 1.8%, while Hong Kong’s Hang Seng is down 0.7%. Over on Wall Street, futures are unchanged, after the S&P 500 ended yesterday flat, and the Nasdaq and Dow Jones logged small gains.

THE CLOSING BELL: TADAWUL-

The TASI inched up 0.1% yesterday on turnover of SAR 6.1 bn. The index is down 8.8% YTD.

In the green: Sisco Holding (+9.9%), SPPC (+9.8%) and Sarco (+5.5%).

In the red: SMC Healthcare (-3.4%), Zamil Indust (-2.3%) and Alarabia (-2.1%).

THE CLOSING BELL: NOMU-

The NomuC slipped 0.1% yesterday on turnover of SAR 24.5 mn. The index is down 14.7% YTD.

In the green: FAD (+10.0%), NGDC (+9.0%) and Almodawat (+8.1%).

In the red: Naas Petrol (-7.8%), Future Care (-6.5%) and Aldawliah (-6.1%).

CORPORATE ACTIONS-

Ma’aden’a board approved boosting its capital by 2.3% to SAR 38.9 bn to acquire the remaining 25.1% stakes of its subsidiaries, the Ma’aden Bauxite and Alumina Company (MBAC) and the Ma’aden Aluminium Company (MAC), it said in a disclosure to Tadawul. The SAR 859.8 mn capital increase will be executed by issuing over 85 mn new shares to the sellers, AWA Saudi and Alcoa Saudi, as payment for their shares in MBAC and MAC.

SAL Saudi Logistics Services will distribute a dividend payout of SAR 114.4 mn for 1Q 2025 at SAR 1.43 per share, according to a disclosure to Tadawul (pdf). The distribution date is set for 15 July.