Emerging Markets ETF (IEMG) Sees Double-Digit Upside in 2025

Emerging markets are up by more than 20% YTD, the best start to a year since 2017. The iShares Core MSCI Emerging Markets ETF (IEMG) has also seen a significant increase, and its relative performance to the S&P 500 is notable. Another double-digit upside for IEMG is possible in 2025.

Emerging markets (EM) have shown remarkable resilience in the first half of 2025, with a year-to-date (YTD) return of over 20%. This performance is the best since 2017, driven by a combination of looser global monetary policies, supply chain realignments, and improving inflation trends. The iShares Core MSCI Emerging Markets ETF (IEMG) has been a standout performer, returning 21% YTD, compared to the S&P 500's 8% gain [1].

Key factors contributing to EM's strong performance include:

1. Global Monetary Policy: Looser monetary policies in major economies have provided a tailwind for EM. The Federal Reserve and European Central Bank have both shown a willingness to ease rates, which has helped to boost asset prices and support economic growth.

2. Supply Chain Realignments: The ongoing realignment of global supply chains has benefited EM economies. As companies look to diversify their supply chains away from China, EM countries are seeing increased investment and trade flows.

3. Inflation Trends: Inflation trends have been improving across most EM countries, enabling a more assertive monetary policy stance. This has helped to stabilize currencies and reduce the risk of inflationary pressures.

4. Tariff Uncertainty: While the threat of tariffs remains, the uncertainty around their extent and persistence has been relatively muted. The 90-day pause on select tariffs and easing of trade tensions between the U.S. and China have provided some relief.

The iShares Core MSCI Emerging Markets ETF (IEMG) has been a beneficiary of these trends, with its broad exposure to large, mid, and small-capitalization EM equities. The fund's low cost and large asset base make it an attractive option for long-term investors seeking exposure to EM stocks.

Looking ahead, analysts remain optimistic about the growth prospects for EM over the medium term. However, they also caution that the near-term macroeconomic outlook remains clouded by shifting U.S. objectives and elusive trade agreements. The U.S. dollar's weakness and the potential for continued dollar weakness could provide further support to EM currencies and assets.

While EM economies are not expected to fully avoid the projected slowdown in global growth, countries with solid domestic fundamentals supported by prudent economic policies are expected to outperform developed economies by an increasing margin in the years ahead.

References:
[1] https://www.tcw.com/Insights/2025/2025-07-22-EM-Poised-for-Resilience-Amid-Uncertainty
[2] https://seekingalpha.com/article/4803855-iemg-another-double-digit-upside-doable-in-2025-for-emerging-markets