Why Emerging Market Equities Outperformed in 2025

Emerging market equities have delivered a striking outperformance in 2025, with the MSCI Emerging Markets Index surging 28.2% year to date through September. This rally, outpacing major developed market indices, reflects a confluence of structural advantages and macroeconomic tailwinds. From the global AI supercycle to undervalued equities and dollar weakness, emerging markets have positioned themselves as a compelling asset class for investors seeking long-term growth.

Structural Advantages: AI and Trade Shifts Drive Growth

The global AI race has disproportionately benefited emerging markets, particularly those with advanced manufacturing and technology ecosystems. South Korea's equity market, for instance, soared 58% year to date in 2025, driven by surging demand for semiconductors and AI infrastructure. Similarly, Taiwan's tech sector has capitalized on its role as a global chipmaker, amplifying returns for investors. Beyond technology, shifts in global supply chains have bolstered industrial and commodity exporters. South Africa's 57% equity gain in 2025 underscores the strength of its mining and metals sectors, which have benefited from rising demand for critical minerals in clean energy and AI hardware.

These structural trends are not isolated to Asia. Peru, for example, has seen robust growth in its non-primary sectors, with commerce and services expanding 3.2% year-on-year in August 2025. Meanwhile, the mining sector-responsible for 12% of global copper supply-has thrived on elevated copper prices, driven by green energy transitions and infrastructure spending.

Macroeconomic Tailwinds: Undervaluation and Dollar Weakness

Emerging market equities trade at a 32% P/E discount to developed markets, a valuation gap supported by strong earnings growth and economic resilience. This discount has made markets like Brazil and India particularly attractive. Brazil's MSCI index gained 30% year to date in 2025, fueled by easing inflation, improved fiscal discipline, and favorable U.S. tariff policies. India's MSCI index, while more modestly up 6% YTD, has benefited from structural tailwinds such as rising urban consumption and digitization.

Dollar weakness in 2025 has further amplified returns. A weaker U.S. dollar typically boosts emerging market currencies and enhances the appeal of EM equities for foreign investors. J.P. Morgan Global Research anticipates this trend to continue into 2026, with the dollar's decline expected to support EM markets through improved corporate margins and reduced debt burdens.

Sectoral Strength: China, South Korea, and Peru in Focus

China's equity market, though uneven, has shown signs of stabilization. The MSCI China Index rose 2.0% in Q2 2025, with year-to-date gains of 17.3%. While overcapacity in sectors like consumer goods remains a challenge, excess household savings and cautious optimism among domestic investors suggest potential for a re-rating.

South Korea's tech-driven rebound highlights the power of AI-driven demand. The country's 58% YTD gain reflects its dominance in semiconductors and robotics, sectors poised to benefit from sustained global capital expenditures.

Peru's growth story is equally compelling. Private investment rose 9.0% year-on-year in 2025, driven by infrastructure projects and improved business sentiment. The mining sector, a cornerstone of Peru's economy, expanded 7.8% in October 2025, underpinned by high copper prices and global demand for critical minerals.

2026 Outlook: A Case for Continued Investment

J.P. Morgan Global Research remains moderately bullish on emerging market equities for 2026, forecasting robust performance driven by lower local interest rates, higher earnings growth, and improved corporate governance. The AI supercycle, expected to fuel capital expenditures and earnings expansion, will likely remain a key catalyst. Additionally, resilient global growth and healthier fiscal balance sheets in emerging markets provide a solid foundation for sustained outperformance.

For investors, the combination of undervaluation, structural growth drivers, and macroeconomic tailwinds makes emerging market equities a compelling long-term opportunity. While geopolitical risks persist, the 2025 rally demonstrates that EM markets can thrive even in uncertain environments-provided investors focus on sectors and regions best positioned to capitalize on global shifts.