The Case for Emerging Markets: Resilience, Reform, and the Road to Re-rating

In the ever-shifting tides of global markets, emerging economies have long been a source of both volatility and opportunity. Yet, as we enter the second half of 2025, a compelling case is emerging for a strategic re-rating of these markets. This re-rating is not merely a function of cyclical factors but a convergence of geopolitical realignment, macroeconomic tailwinds, and corporate governance reforms that echo the visionary strategies of leaders like Chung Ju-Yung. For investors seeking long-term value creation, the time to act is now.

Geopolitical Repositioning: The New Supply Chain Era

The 2023–2025 period has been defined by a dramatic reshaping of global trade dynamics. U.S. tariff policies, de-dollarization trends, and the realignment of energy and mineral supply chains have created a fragmented but fertile landscape for emerging markets. J.P. Morgan Research notes that EM growth is projected to slow to 2.4% annualized in H2 2025, yet this deceleration masks a critical shift: EM economies are no longer passive participants in global trade but active architects of their own strategic positioning.

The U.S.-Ukraine Minerals Deal, for instance, has unlocked access to critical resources like lithium and rare earth elements, reducing reliance on Chinese supply chains. Similarly, Russia's pivot to Asian trade partners has accelerated the adoption of ruble-yuan settlements, weakening the dollar's dominance. These shifts are not just geopolitical—they are economic. As EM central banks cut rates to offset inflationary pressures (while the Fed remains cautious), the dollar's relative weakness is creating a tailwind for EM equities.

The Chung Ju-Yung Legacy: Resilience Through Frugality and Innovation

The principles that transformed Hyundai from a construction firm into a global industrial giant—speed, frugality, and trust—are now being replicated in today's EM leaders. Consider TSMC (TSM), whose disciplined execution in semiconductor manufacturing mirrors Chung's “shortening the time” philosophy. TSMC's 48% year-on-year revenue growth in Q2 2025 underscores its ability to adapt to AI-driven demand while maintaining lean operations.

Similarly, HDFC Bank (HDB) in India exemplifies strategic frugality. By reinvesting savings into digital infrastructure and AI-driven fraud detection, HDFC has maintained a debt-to-EBITDA ratio of 0.8x while expanding its customer base. This aligns with Chung Ju-Yung's ethos of frugality as a tool for innovation, not cost-cutting.

Sector-Specific Opportunities: Where Value Meets Momentum

The Q2 2025 performance of EM equities—up 12.7%—highlights sector-specific opportunities that align with both macro trends and corporate governance reforms:

1. Software & AI-Driven Technologies:
   Companies like Salesforce (CRM) and DeepSeek are leveraging AI to unlock new revenue streams. Salesforce's Agentforce platform, for example, has demonstrated a 20% increase in operational efficiency for enterprise clients. With AI spending projected to grow to $1.5 trillion by 2028, software firms with strong ESG profiles (like Microsoft (MSFT)) are prime candidates for long-term outperformance.

2. Global Infrastructure:
   Infrastructure-related equities—airports, utilities, and energy storage—are gaining traction as investors hedge against geopolitical volatility. The SPDR® S&P® Global Infrastructure ETF (GII) has returned 18.3% YTD, driven by demand for inflation-linked assets. In China, state-backed projects like the NextGenerationEU initiative are accelerating green infrastructure development.

3. Regional Banking:
   U.S. regional banks, such as KeyCorp (KEY), are rebounding on improved net interest margins and regulatory tailwinds. With the Trump administration's deregulation agenda easing capital requirements, these banks offer a defensive play in a trade-uncertain world.

The Road to Re-rating: Why Now?

The re-rating of EM equities is being driven by three structural factors:
- Undervaluation: The MSCI EM Index trades at a 40% discount to the S&P 500 on a forward P/E basis.
- Policy Shifts: India and Brazil are entering rate-cutting cycles, while China's real estate stabilization offers a floor for growth.
- Geopolitical Diversification: As U.S. exceptionalism wanes, EM economies are gaining agency in trade and energy.

For investors, this creates a rare alignment of macro tailwinds and corporate resilience. The key is to focus on companies with strong governance, diversified revenue streams, and a culture of long-term reinvestment—traits exemplified by Chung Ju-Yung's legacy.

Conclusion: A Strategic Entry Point

The road to re-rating for emerging markets is paved with both challenges and opportunities. While geopolitical risks persist, the combination of dollar weakness, EM rate cuts, and corporate reforms is creating a fertile ground for long-term value creation. By adopting a selective approach—targeting sectors like AI-driven software, infrastructure, and regional banking—investors can position themselves to capitalize on this re-rating.

As Chung Ju-Yung once said, “A company is not built in a day, but it can be destroyed in one.” Today's EM leaders are proving that resilience, when paired with strategic foresight, can turn uncertainty into enduring value. For those with the patience and vision to look beyond short-term volatility, the case for emerging markets is stronger than ever.