The Case for Emerging Markets Dividend Equities in a Geopolitical and Trade-Shifting World

In a world defined by geopolitical fragmentation and shifting trade dynamics, emerging markets (EM) dividend equities are increasingly positioned as a compelling asset class for investors seeking uncorrelated returns and long-term capital preservation. Despite their historical volatility, EM equities are now trading at significant discounts to developed markets, creating a valuation dislocation that demands strategic under-ownership reconsideration. This analysis examines the drivers of this opportunity, focusing on abrdn EMD ETF’s Q2 2025 outperformance, Titan Wealth’s emphasis on undervalued EM exposure, and macroeconomic dynamics such as falling risk premiums, European capital inflows, and Korean tax reform.

abrdn EMD ETF’s Q2 2025 Outperformance: A Structural Shift in EM Investing

The abrdn EMD ETF’s Q2 2025 performance underscores a broader structural shift in EM investing. The fund attracted £2.4bn in net inflows during the quarter, driven by tax-year-end demand and a robust share buyback program by the Aberdeen Emerging Markets Equity Income Fund (AEF) [2]. This outperformance is not merely a function of liquidity but reflects deeper macroeconomic tailwinds.

Emerging market central banks are now positioned to cut rates ahead of the U.S. Federal Reserve, creating a real interest rate differential that historically favors EM earnings growth [1]. For instance, India’s young workforce and policy continuity have bolstered domestic demand, while Vietnam’s macroeconomic improvements and earnings growth have further reinforced EM resilience [2]. Additionally, the AI-driven tech cycle and green transition are accelerating capital inflows into EMs. Countries with resource-rich endowments, such as copper producers in Latin America, are capitalizing on renewable energy infrastructure demand, while hardware manufacturing hubs in Southeast Asia benefit from the “China plus-one” diversification strategy [1].

Titan Wealth’s Strategic Emphasis on Undervalued EM Exposure

Titan Wealth’s Q2 2025 newsletter highlights a deliberate shift toward undervalued EM exposure as part of its “Changing World” investment theme [1]. Emerging markets are currently trading at a 40% discount to developed markets, a dislocation that Titan attributes to persistent under-ownership and risk aversion. This undervaluation aligns with the firm’s objective of balancing global exposure while avoiding overreliance on any single region or asset class.

The firm’s rationale is supported by the falling global equity risk premium (ERP), which has eroded the traditional diversification benefits of U.S. equities. As European investors redirect capital toward EMs—driven by higher ERPs and diversification needs—dividend-paying EM equities are becoming increasingly attractive [2]. For example, Titan notes that Korean tax reform, including separate taxation for dividend income and corporate governance improvements, is addressing the “Korea discount” and enhancing shareholder returns [5]. These reforms, coupled with strategic industries like AI and biotechnology, are expected to enhance long-term equity returns in EMs [3].

EM Debt/Equity Dynamics: Falling Risk Premiums and Credit Risks

The interplay of falling EM risk premiums and European inflows is reshaping the investment landscape. Data from BlackRock indicates that global equity risk premiums have declined due to high U.S. valuations and slowing earnings growth, making EMs more competitive [2]. European capital flows, in particular, have been drawn to EMs for their higher ERPs and diversification potential. However, this trend is not without risks.

Emerging market sovereigns and financial institutions face fiscal challenges, including high debt levels and geopolitical spillovers from trade tensions [4]. For instance, while the green transition is driving demand for copper and other critical minerals, it also exposes EMs to cyclical commodity price swings. Similarly, Korean tax reforms—though beneficial for corporate governance—introduce short-term headwinds, such as a one-percentage-point increase in corporate income tax rates [3]. These risks underscore the importance of selecting high-quality EM dividend equities with strong balance sheets and resilient cash flows.

Korean Tax Reform: A Catalyst for Dividend Yield Improvements

South Korea’s 2025 tax reform is a pivotal development for EM dividend equities. The reform introduces separate taxation for dividend income and expands incentives for strategic industries like AI and biotechnology [5]. By addressing historical governance issues and the “Korea discount,” the reforms aim to enhance shareholder returns and attract foreign capital.

The Corporate Value-up Program, a key component of the reform, mandates higher dividend payouts and improved corporate governance, directly countering under-ownership biases [4]. While the Domestic Minimum Top-up Tax (DMTT) may initially pressure multinational corporations, the long-term benefits for EM investors—such as increased transparency and reinvestment in high-growth sectors—could outweigh these challenges [3].

Conclusion: Reallocating Capital into High-Quality EM Dividend Equities

The confluence of structural shifts—falling risk premiums, European inflows, and EM-specific reforms—creates a rare window for investors to capitalize on undervalued EM dividend equities. The abrdn EMD ETF’s Q2 2025 outperformance and Titan Wealth’s strategic emphasis on EM exposure highlight the growing appeal of this asset class. While geopolitical and credit risks persist, the valuation dislocation and macroeconomic tailwinds suggest that high-quality EM dividend equities are poised to outperform in a diversified portfolio.

Source:
[1] Emerging markets: Why the asset class is worth the “bother” [https://www.aberdeeninvestments.com/en-us/investor/insights-and-research/emerging-markets-why-the-asset-class-is-worth-the-bother]
[2] Half Year Results 2025 Presentation Transcript [https://www.aberdeenplc.com/docs?documentid=AA-220725-196415-4]
[3] Tax Reform Act 2025 - Summary of Key Highlights for ... [https://www.rsm.global/korea/en/news/tax-reform-act-2025-summary-key-highlights-foreign-invested-entities-0]
[4] Emerging Markets Credit Risk Highlights [https://events.moodys.com/emerging-markets/reports]
[5] The Korea Opportunity: Why This Time Is Indeed Different [https://www.linkedin.com/pulse/korea-opportunity-why-time-indeed-different-khmsc]