While all eyes have been on the runaway U.S. bull market, emerging markets stocks have delivered impressive results. The MSCI Emerging Markets stock index returned 29.7% in 2025 through November, far ahead of the S&P 500's 17.8% gain.
Emerging-markets fans say the rally is just the beginning of a long-term trend, supported by an evolving world order focused on deglobalization that will accelerate earnings growth and favorable currency swings in emerging markets over a period of several years.
"The U.S. market and the U.S. dollar have been kings for 15 years," says Arjun Jayaraman, a portfolio manager and head of quantitative research at Causeway Capital Management. "We're finally starting to see cracks in that."
A weaker dollar is a plus for international stocks, with overseas returns translating into more greenbacks back home.
Extended pressure on the dollar could lead to a repatriation of global capital out of the U.S. and into emerging markets, says Michael Kass, portfolio manager of the Baron Emerging Markets Fund (BEXFX). That process tends to play out over long cycles.
"We're near an inflection point in the dollar and long-term capital flows," he says, adding that a major bear market in the dollar isn't necessary for emerging markets to prosper. "If the dollar is flat, that's going to be good."
Strong fundamentals for emerging markets stocks
The International Monetary Fund's most recent economic outlook forecasts average growth for emerging countries of a bit over 4% in 2026 relative to 2025, compared with just 1.5% for developed economies.
Analysts expect double-digit earnings growth for companies in the MSCI EM index, with forecasts of 17.5% in 2026, up from a projected 11.4% in 2025, according to Wall Street economist and strategist Ed Yardeni, of Yardeni Research.
Yet stocks in the index remain attractively priced, trading at an average price-to-earnings (P/E) ratio of just over 14 based on estimated earnings for the 12 months ahead. The U.S. market trades at 23 times earnings.
Of course, investing in emerging markets carries increased risks, says Yardeni, including domestic political instability, trade tensions, geopolitical perils and pockets of debt stress. "We see an opportunity to invest broadly across EMs," he says, "but be mindful of the risks and regional disparities."
The risks are real, but the IMF report also noted that although global financial shocks have historically had an outsize impact on emerging markets, "recent experience marks a departure from this pattern, with many emerging markets displaying remarkable resilience," in part due to more credible and effective monetary and fiscal policies.
How to invest in emerging markets
A good way to play emerging markets stocks is with a fund such as the Baron offering above, a member of the Kiplinger 25, the list of our favorite no-load mutual funds.
Portfolio manager Kass sees several promising themes. A deglobalization scenario that redraws trade routes and beefs up domestic spending on defense is benefiting South Korean shipbuilding and defense firms. Taiwan boasts global franchises in artificial intelligence, as well as companies that produce supporting hardware and services throughout the AI ecosystem; China is neck-and-neck with the U.S. in terms of robotics.
"Everything Tesla is doing, companies in China are doing something similar," Kass says. The fund returned 28.6% in 2025 through November.
The Causeway Emerging Markets Fund (CEMVX), up 31.0% over the period, is another good choice. The fund's biggest bet relative to the emerging-markets benchmark is South Korea, where the government is following Japan's lead in putting pressure on firms to improve corporate governance and increase dividend payouts.
The fund's portfolio underweights India at the moment, as earnings have been lackluster and the market has lagged. But comanager Jayaraman is positive on the long-term outlook, given the likelihood of India's strong economic growth for the rest of the decade "without the gimmicks of artificially low interest rates, or a concentration in AI."
With a broad global benchmark recently counting emerging markets as 11% to 12% of assets, allocating 15% of total stock holdings to EM stocks "is not betting the farm," Jayaraman says. And as increasingly speculative tech giants account for so much of the U.S. benchmark, it makes sense to broaden your portfolio. "Today, EM is not the high-risk asset class,'' he says.
We should note that emerging markets bonds have also done well, with the Bloomberg Emerging Markets Aggregate Bond Index returning 11.6% over the first 11 months of 2025, compared with 7.5% for the Bloomberg U.S. Aggregate Bond Index.
"Emerging markets did a good job staving off inflation and, from a fiscal standpoint, have gotten their house in order. Developed markets are the ones driving up deficits," says portfolio manager Brian Kennedy at Loomis Sayles.
Our favorite EM fixed-income fund is the Vanguard Emerging Markets Bond Fund (VEMBX), up 13.6% over the period.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
