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Emerging markets (EMs) have long been a source of both opportunity and uncertainty for global investors. For asset owners who haven’t recently revisited their EM exposure, now may be an opportune time to reassess. While near-term volatility persists, the longer-term outlook for EMs remains compelling. A combination of favorable macroeconomic trends, policy reforms, and attractive valuations suggests that EM equities could be poised for a resurgence. From the weakening US dollar (USD) to structural improvements in local economies, the evolving EM landscape offers fresh opportunities for growth and diversification benefits in global allocations. Explore the factors driving this optimism and why the time may be right for a renewed focus on EMs.
EM equities just needed a catalyst. A weaker USD this year has allowed central banks and policymakers in EMs to pursue policies to support the domestic economy. Looking at patterns since the end of 2005, we can observe an inverse correlation between the value of the USD and the cumulative relative return of EM equities versus the S&P 500® Index. While the weak performance of the USD this year could pause in the near term, we are observing a reassessment of the USD taking place at large asset owners, which combined with rich valuations and trade policies favoring the rebalancing of the US current account (which, in theory, will mean a lower capital account) has the potential to put downward pressure on the American currency.
Figure 1: Trade-weighted dollar and cumulative relative return of EM equities vs. S&P 500 Index
Notes: S&P 500 Index total return, MSCI Emerging Markets Index net total return in USD, and US Dollar Index (DXY) all from Bloomberg, details of methodology available on request; correlation of monthly changes in these two series is -0.45.
In recent years, the earnings outlook for EMs was unappealing. However, we think that the combination of a weaker USD and local policy reforms will help to create a more attractive environment for both domestic and foreign investors. In South Korea, for instance, we are expecting corporations to adopt more shareholder-friendly policies such as higher dividends and more share buybacks. In China, we anticipate that the central government will continue trying to reduce excess capacity in some industries, which should improve corporate margins. And in EMs, generally, we can see local companies increasingly competing for both local and global demand.
Over the past two decades, the forward price-to-earnings (P/E) multiple of EM equities has generally been lower than the forward P/E multiple for the S&P 500 Index. In recent years, this discount has widened substantially to reach a near record low of approximately 43% in June 2025. In our view, this provides EM equities a substantial buffer that US markets do not have.
Figure 2: Relative forward P/E ratio of MSCI Emerging Markets Index to S&P 500 Index
Notes: Shows a ratio of P/E S&P 500 Index and MSCI Emerging Markets Index, relative to each other, based on consensus forecast earnings for the next fiscal year (FY1), all data from Bloomberg; details of methodology available on request. Data as of June 30, 2025.
After more than a decade when the returns on EM equities were lower than the returns on US large-cap equities, it is not surprising that asset owners have been reluctant to commit money to EMs, explaining the light positioning. At the end of June 2025, EMs represented 11% of the MSCI All Country World Index by weight, but Morningstar has estimated that average US client exposure to EM equities was only 3%.1
In sum, we are cautiously optimistic about the outlook for EMs, despite the possibility of near-term volatility due to US policy unpredictability and the possibility that US interest rates may remain at high levels for longer than previously expected. None of these meaningfully alter the bright picture for growth opportunities in EMs, in our view.
Even if the US tariff rates imposed so far are somewhat above what was initially expected, the impact on EM growth may not be as negative as markets had feared a few months ago. Many EMs now have a stronger macroeconomic framework than in the past and are more competitive globally.
In our view, conditions are now ripe for a reappraisal of EM equities, due to a weaker USD, improvement in fundamental conditions, attractive relative valuations, and renewed appetite for diversification.
Learn more about how our Emerging Markets Equity Team put their views into practice our Focused Emerging Markets Equity ETF (EMEQ). This ETF provides access to the team’s time-tested investment philosophy in an actively managed portfolio of 35-60 stocks. These high-conviction investment ideas seek to capture long-term secular growth opportunities in emerging markets.
1. Morningstar, data as of June 30, 2025.
In April 2025, Macquarie Group Limited and Nomura Holding America Inc. (Nomura) announced that they had entered into an agreement for Nomura to acquire Macquarie Asset Management’s US and European public investments business. The transaction is subject to customary closing conditions, including the receipt of applicable regulatory, client, and shareholder approvals. Subject to such approvals and the satisfaction of these conditions, the transaction is expected to close by the end of 2025.
Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results.
The Macquarie ETF Trust Funds are distributed by Foreside Financial Services, LLC. Foreside Financial Services, LLC is not affiliated with any Macquarie entity, including Macquarie Asset Management and Delaware Distributors, L.P.
Carefully consider the Fund's investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Fund's prospectus or the summary prospectus, which may be obtained by visiting the macquarie.com/mam/etf-literature or calling 844 469-9911. Read the prospectus carefully before investing.
Foreign and emerging markets risk is the risk that international investing (particularly in emerging markets) may be adversely affected by political instability; changes in currency exchange rates; inefficient markets and higher transaction costs; foreign economic conditions; the imposition of economic or trade sanctions; or inadequate or different regulatory and accounting standards. The risk associated with international investing will be greater in emerging markets than in more developed foreign markets because, among other things, emerging markets may have less stable political and economic environments. In addition, there often is substantially less publicly available information about issuers and such information tends to be of a lesser quality. Economic markets and structures tend to be less mature and diverse, and the securities markets may also be smaller, less liquid, and subject to greater price volatility.
Diversification does neither ensure a profit nor guarantee against loss in a declining market. The Fund is actively-managed and may not meet its investment objective based on the Adviser’s success or failure to implement investment strategies for the Fund. The Adviser’s evaluations and assumptions regarding issuers, securities, and other factors may not successfully achieve the Fund’s investment objective given actual market conditions. Macquarie ETF Trust exchange-traded funds (ETFs) are actively managed and do not seek to replicate a specific index. ETF shares are bought and sold through an exchange at the then current market price, not net asset value (NAV), and are not individually redeemed from the fund. Shares may trade at a premium or discount to their NAV when traded on an exchange. Brokerage commissions will reduce returns. There can be no guarantee that an active market for ETFs will develop or be maintained, or that the ETF's listing will continue or remain unchanged.
The Morningstar Diversified Emerging Markets Category compares funds that tend to divide their assets among 20 or more nations but tend to focus on the emerging markets of Asia and Latin America rather than on those of the Middle East, Africa, or Europe. These funds invest predominantly in emerging market equities, though some invest in both equities and fixed income investments from emerging markets.
The price-to-earnings ratio (P/E ratio) is a valuation ratio of a company’s current share price compared to its earnings per share. Generally, a high P/E ratio means that investors are anticipating higher growth in the future. Price-to-Earnings ratio calculated using the estimated earnings per share (EPS) for the first upcoming fiscal year (FY1). Index P/E calculation reflects the weighted average P/E FY1 of the index constituents.
The MSCI Emerging Markets Index represents large- and mid-cap stocks across emerging market countries worldwide. The index covers approximately 85% of the free float-adjusted market capitalization in each country. Index "net" return approximates the minimum possible dividend reinvestment, after deduction of withholding tax at the highest possible rate.
The MSCI ACWI (All Country World Index) Index represents large- and mid-cap stocks across developed and emerging markets worldwide. The index covers approximately 85% of the global investable equity opportunity set.
The S&P 500 Index measures the performance of 500 mostly large-cap stocks weighted by market value and is often used to represent performance of the US stock market.
The S&P Total Market Index (TMI) is designed to track the broad equity market, including large-cap, mid-cap, small-cap, and micro-cap stocks. The S&P 500® and the S&P Completion Index are subsets of the S&P TMI.
The US Dollar Index measures the weighted mean value of the US dollar relative to a basket of six foreign currencies: the euro, Japanese yen, British pound sterling, Canadian dollar, Swedish krona, and Swiss franc. The index goes up when the US dollar gains strength, or value, compared to other currencies.
Index performance returns do not reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index.
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Nothing presented should be construed as a recommendation to purchase or sell any security or follow any investment technique or strategy.
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