Emerging market equities have had a really good 2025 so far — and they’re on track to keep outperforming well into next year, Goldman Sachs said in a recent note. The MSCI EM index has closed each month this year in the green, and is up c.32% YTD. The index rose 7% in September as the US Federal Reserve cut interest rates for the first time in 2025, “contributing to a ‘risk-on’ sentiment as investors sought out assets with higher potential returns relative to safer fixed-income investments.”

This performance is expected to be sustained over the next 12 months, with Goldman Sachs upgrading its forecast from the index to 1,480 from 1,373 as of 9 October, “implying 8% price returns from current levels” in USD terms.” The outlook comes as Goldman Sachs expects strong company earnings from emerging markets, which are seen rising 9% this year and 14% in 2026.

The bull run comes after a “very long winter” — “the EM trade has not been a good one” since 2009, ABS Global Investments founding partner and portfolio manager Guilherme Ribeiro do Valle tells CIO. Indeed, the EM MSCI index underperformed the MSCI World index by more than 200 percentage points from 2010-2024, Deutsche Bank’s Oliver Harvey wrote for the Financial Times. Developed markets such as the US, Europe, and Japan, saw a concentration of liquidity during that time on the back of quantitative easing policies, while emerging markets simply were not able to do the same. However, emerging markets have broadly recovered post-covid, with rapid interest rate cuts also supporting structural changes that are now in these markets’ favor.

Even as they outperform, EM equities still boast very attractive valuations. As of last month, EMs “remain deeply undervalued: at 14x forward price-to-earnings, they are 30% cheaper than [developed markets] and a striking 42% cheaper than the US. Add in the low price-to-book ratios and higher dividend yields versus the US, and the case for EMs becomes more compelling,” Eastspring Investments said in a recent report. Goldman Sachs sees particular upside in Chinese and Korean equities, while potential reforms that would ease limits on foreign ownerships of listed companies in Saudi Arabia “could unlock passive inflows up to USD 10 bn” to equities in the Kingdom.

The key drivers of the rally: A weaker USD, and investors trying to diversify away from the US, for the most part. “The USD plays a crucial role in emerging market trade as the main invoicing currency for imports, and financial systems, with a large share of debt still denominated in it,” Harvey said. The weakening of the USD has therefore helped developing economies improve their current account balance and reduce their external liabilities, Harvey notes, and can “boost flows into EM stocks as investors look for higher returns outside the US,” Goldman Sachs says.

It’s not just equities — EM currencies are also having their time in the sun: EM currencies are also on a tear, outperforming developed market currencies in September, Goldman Sachs notes. The investment bank sees that performance continuing in the months to come, supported by a strong carry trade, the movement in the USD, and the EM equity boom.

MARKETS THIS MORNING-

Asian markets are treading water in early trading this morning, with Japan’s Nikkei leading losses as analyst sentiment remains mixed on the country’s new cabinet — led by its first-ever woman prime minister — and export data came in lower than expected. The Hang Seng Index and the Shanghai Composite are also in the red, while the Kospi is trading up so far.

Wall Street, meanwhile, looks likely to open flat later today. Futures for the Dow Jones and S&P 500 are marginally in the red, while Nasdaq futures are trading marginally in the green.

TASI

11,546

-0.9% (YTD: -4.1%)

MSCI Tadawul 30

1,507

-0.7% (YTD: -0.1%)

NomuC

25,072

-0.6% (YTD: -20.3%)

USD : SAR (SAMA)

USD 3.75 Sell

USD 3.75 Buy

Interest rates

4.75% repo

4.25% reverse repo

EGX30

37,698

-0.7% (YTD: +26.8%)

ADX

10,121

+0.2% (YTD: +7.5%)

DFM

5,976

+0.4% (YTD: +15.8%)

S&P 500

6,735

0.0% (YTD: +14.5%)

FTSE 100

9,427

+0.3% (YTD: +15.3%)

Euro Stoxx 50

5,687

+0.1% (YTD: +16.2%)

Brent crude

USD 61.60

+0.5%

Natural gas (Nymex)

USD 3.52

+1.3%

Gold

USD 4,083

-0.6%

BTC

USD 109,279

-1.1% (YTD: +16.6%)

Sukuk/bond market index

915.24

-0.6% (YTD: +1.5%)

S&P MENA Bond & Sukuk

152.05

+0.2% (YTD: +8.7%)

VIX (Volatility Index)

17.87

-2.0%(YTD: +3.0%)

THE CLOSING BELL: TADAWUL-

The TASI fell 0.9% yesterday on turnover of SAR 4.9 bn. The index is down 4.1% YTD.

In the green: Almajed Oud (+3.4%), Americana (+2.4%) and Alarabia (+1.8%).

In the red: YC (-10.0%), Teco (-6.5%) and City Cement (-4.8%).

THE CLOSING BELL: NOMU-

The NomuC fell 0.6% yesterdayon turnover of SAR 26.2 mn. The index is down 20.3% YTD.

In the green: Alqemam (+9.4%), Meyar (+8.9%) and Time (+6.5%).

In the red: Lana (-9.0%), Mulkia (-8.1%) and Dar Almarkabah (-6.9%).

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