Navigating a Weak USD: How Emerging Markets and Selective Stocks Offer Resilient Returns

The U.S. dollar's trajectory in 2025 has become a focal point for global investors, with the Federal Reserve's cautious rate-cut stance and geopolitical risks shaping expectations of a gradual decline. For emerging markets (EM), this presents both opportunities and risks. While a weaker USD can alleviate debt burdens and boost export competitiveness, the path to sustained growth hinges on selective equity picks and an understanding of macroeconomic undercurrents. In this analysis, we dissect the macro backdrop, highlight Upwork (UPWK) as a cash-flow driven growth stock, and caution against ESAB (ESAB) and Genpact (G) due to stagnant fundamentals.

The USD Dilemma: Fed Rate Cuts and EM Currency Resilience

The Federal Reserve's June 2025 decision to hold rates at 4.25%-4.5% reflects its balancing act between inflation risks and economic uncertainty. While the Fed projects two rate cuts by year-end, inflation remains stubbornly high (3.0% PCE in 2025 vs. 2.0% target), and GDP growth has been revised downward to 1.4%. This cautious stance, paired with geopolitical tensions (e.g., Israel-Iran conflict), has kept the USD index volatile but stable—not yet in a free fall.

However, EM currencies are positioned to gain if the USD weakens further. A weaker greenback reduces debt-servicing costs for countries with dollar-denominated obligations and boosts export revenues. Key beneficiaries include Mexico (MXN), Turkey (TRY), and South Africa (ZAR), which have shown resilience despite external headwinds.

Stock Spotlight: Upwork (UPWK)—The Cash-Flow Engine

While many EM equities face macro headwinds, Upwork emerges as a compelling pick due to its AI-driven growth and improving margins. The gig economy leader reported Q1 2025 adjusted EBITDA margins of 29%, up from 17% a year earlier, signaling operational discipline.

• Growth Catalysts:
• AI Integration: AI tools like Uma™ boosted GSV from prompt engineering by 52% year-over-year, driving higher client engagement.
• Enterprise Upselling: The Business Plus plan saw 100% Q/Q growth in active clients, with 37% being new to the platform.
• Profitability: Free cash flow is expected to grow steadily, even as revenue rises modestly (1% GSV growth in Q1).

Why Invest?
Upwork trades at a 10.1x forward EV/EBITDA, a discount to its peers, and its AI-first strategy aligns with remote work's enduring demand. The stock is a pure play on structural growth in the $459B global gig economy, insulated from near-term USD fluctuations.

Red Flags: ESAB (ESAB) and Genpact (G)—Stagnation in Disguise

Not all EM-linked stocks warrant optimism. Both ESAB (industrial welding) and Genpact (IT services) face stagnant revenue growth and overvalued multiples, making them cautionary tales.

ESAB: Reliant on Acquisitions, Not Organic Growth

• Revenue Growth: Expected to grow just 3% in the next year, with EPS rising 4.4% annually over three years.
• Free Cash Flow: A trailing margin of 10.8% masks a lack of organic momentum. The company has relied on acquisitions to offset declining core sales, a risky strategy in a slowing economy.

Genpact: Overvalued and Underperforming

• Growth Metrics: Revenue is projected to grow only 3.6%, with EPS rising 9.4% annually over two years—both lag sector averages.
• Valuation: Trading at 12.5x forward P/E, Genpact's premium assumes growth that hasn't materialized. Its 12.3% free cash flow margin is overshadowed by tepid top-line performance.

Why Avoid?
Both stocks lack the catalysts to outperform in a weak USD environment. ESAB's reliance on cyclical industrial demand and Genpact's pricing pressures in IT services make them vulnerable to macro slowdowns.

Investment Strategy: Leverage USD Weakness Selectively

1. EM Currency Plays: Overweight MXN and ZAR via ETFs like FXM (Mexico) or SZA (South Africa), but hedge against geopolitical risks.
2. Equity Picks:
3. Buy Upwork (UPWK) for its margin expansion and AI-driven tailwinds.
4. Avoid ESAB and Genpact until they demonstrate organic growth.
5. Macro Caution: The USD's dominance persists—don't overexpose to EM without diversification.

Conclusion: Patience and Precision in a Volatile Landscape

The USD's trajectory remains tied to Fed policy and global risks, but its gradual weakening offers a tailwind for EM. Investors must avoid blanket bets and instead focus on companies like Upwork, which combine strong unit economics with secular growth. Meanwhile, ESAB and Genpact serve as reminders that not all EM-linked stocks are created equal.

In this environment, cash flow discipline and innovation—not just currency trends—are the keys to outperformance.

Data as of June 19, 2025. Past performance does not guarantee future results. Consult with a financial advisor before making investment decisions.