Imagine wrapping up a year where the usual Wall Street giants took a back seat, and instead, stocks from places like Greece, Chile, or Romania stole the show. That’s pretty much what happened in 2025. For the first time in ages, emerging markets didn’t just keep pace—they blew past developed ones. And now, as we look ahead to 2026, the big question on everyone’s mind is: can this keep going?
I’ve been following markets for years, and honestly, this shift feels refreshing. After a decade and a half of U.S. dominance, seeing broader global participation is exciting. But is it sustainable? Let’s dive in and unpack what’s driving this, and whether 2026 could deliver more of the same.
Why 2025 Marked a Turning Point for Emerging Markets
The numbers tell a compelling story. Major emerging market indexes climbed roughly 30% over the year, leaving developed market benchmarks in the dust with gains closer to 20%. It wasn’t just one or two stars carrying the load either—several countries posted eye-popping returns.
Greece’s main index jumped nearly 44%, earning it a promotion to developed status next year. Chile and the Czech Republic both saw their benchmarks rise over 50%. Romania wasn’t far behind with more than 40%. These aren’t small, obscure markets; they’re real economies showing serious momentum.
In my view, this broad-based strength is what makes 2025 feel different. Past rallies in emerging markets often hinged on a single country or commodity cycle. This time, it’s more diversified, which suggests deeper structural changes at play.
The Dollar’s Pullback: A Game Changer
One of the biggest tailwinds? The U.S. dollar finally took a breather. After years of relentless strength, it dropped about 9% against major currencies. For emerging economies, that’s huge.
A strong dollar makes it tougher for these countries to service debt, scares off foreign investors, and generally acts like a wet blanket on growth. When it weakens, the opposite happens: capital flows in, borrowing costs ease, and local assets become more attractive.
Perhaps the most interesting aspect is how this dollar move wasn’t just random noise. It stemmed from shifting investor sentiment, with some even calling parts of the year a “sell America” phase. Whatever the label, the effect was clear—emerging markets got room to breathe.
The headwind from a strong dollar is quickly becoming less of a drag, and could soon turn into a real boost.
Country-Level Transformations Adding Fuel
Beyond macro factors, individual countries underwent meaningful changes. Take corporate governance reforms in parts of Asia—these address long-standing investor concerns about shareholder treatment.
In one major market known for weak governance, new leadership pushed through reforms that could unlock significant value. That’s not just cosmetic; it’s the kind of shift that encourages more investment and better capital allocation.
Elsewhere, there’s been a noticeable pivot toward supporting private enterprise, alongside innovation in tech sectors that challenge established leaders. These developments create new growth narratives beyond the traditional commodity or export stories.
- Better governance leading to higher valuations
- Renewed focus on private sector innovation
- Policy stability attracting long-term capital
I’ve found that when countries tackle their biggest structural weaknesses head-on, the market response can be powerful and sustained. We’re seeing early signs of that now.
The End of Dilution Drag?
Here’s something many overlook: for years, emerging markets suffered from excessive share issuance. Waves of new listings, especially in certain large economies, diluted existing shareholders and weighed on returns.
That’s changing. Net issuance—the balance of new shares versus buybacks and delistings—has narrowed dramatically. In some cases, companies are actually buying back stock at record paces and boosting dividends.
Think about it: for over a decade, this dilution was the primary reason emerging equities lagged developed ones. If that drag disappears—or reverses—the math for future returns improves massively.
The setup for emerging markets hasn’t looked this attractive in close to two decades.
– Portfolio manager insight
It’s one of those under-the-radar factors that could drive outsized gains if more investors catch on.
Valuations Still Screaming Opportunity
Even after 2025’s rally, emerging markets trade at substantial discounts to developed peers. We’re talking 30-50% cheaper on common metrics like price-to-earnings or price-to-book.
Global investors remain underweight these regions, meaning there’s plenty of room for positioning to normalize. When that happens—combined with earnings growth—the upside potential is significant.
Add in solid economic growth forecasts for many emerging economies, and the fundamental case strengthens further.
| Metric | Emerging Markets | Developed Markets |
| Forward P/E Ratio | ~12x | ~18x |
| Price-to-Book | ~1.6x | ~3.2x |
| Expected GDP Growth | 4-5% | 1-2% |
Rough estimates, of course, but the gap is undeniable. Value like this doesn’t stay ignored forever.
Commodities and the AI Connection
Another angle that’s gaining traction: emerging markets as beneficiaries of the global AI buildout. Massive data center expansion requires enormous amounts of copper, energy, and other resources—many of which come from emerging producers.
This isn’t speculative; it’s already driving capex and export revenues. Countries rich in critical materials stand to gain from sustained demand, regardless of who wins the tech race.
In a way, it’s ironic—while developed markets chase AI stocks, emerging ones could profit from supplying the physical infrastructure.
Latin America’s Quiet Revolution
Keep an eye on Latin America too. Political winds are shifting toward more market-friendly policies in several countries. Conservative reforms, closer ties with major trading partners, and focus on the Western Hemisphere could spark a catch-up phase.
Brazil, for instance, has upcoming elections that might bring further change. The region as a whole feels like it’s on the cusp of something bigger.
- Policy alignment with investor priorities
- Increased foreign direct investment
- Commodity leverage meeting global demand
- Potential currency appreciation
It’s early days, but the dominoes seem to be falling in the right direction.
Risks to Watch in 2026
Of course, nothing’s guaranteed. Geopolitical tensions, unexpected rate moves, or renewed dollar strength could disrupt the flow. Some countries still face fiscal challenges or political uncertainty.
That said, the risk/reward balance appears tilted positively. Diversification across regions and sectors helps mitigate individual country risks while capturing the broader theme.
In my experience, the best opportunities often come when sentiment is improving but positioning remains light. That’s arguably where emerging markets sit today.
How Investors Might Position for 2026
If you’re intrigued, broad emerging market ETFs offer simple exposure. For those wanting more control, focusing on countries with the strongest reforms or commodity advantages makes sense.
Blending with developed market holdings maintains balance while adding growth potential. And given the valuation gap, even modest allocation shifts could make a difference over time.
Personally, I’ve been gradually increasing exposure this year. The combination of improving fundamentals, attractive pricing, and multiple catalysts feels hard to ignore.
As we head into 2026, the evidence suggests emerging markets aren’t done yet. After years in the shadows, they might finally be ready for an extended run in the spotlight. Whether you’re a seasoned investor or just starting to look globally, this could be a theme worth following closely.
The real question isn’t just whether outperformance continues—it’s how much further it can go before the rest of the world fully catches up.
