A global fund manager has forecast a positive outlook for emerging markets in the coming year due to a change in monetary conditions across the world.
According to Schroders Australia head of multi-asset Sebastian Mullins, the end of an extended period of United States dollar strength and high US Federal Reserve interest rates has eased a major constraint on emerging economies.
Mullins indicated this will allow central banks in these regions to focus again on domestic growth.
“Emerging market policymakers had little room to move, but that constraint is easing,” he noted.
“With US rates coming down and the dollar off its peak, many emerging markets can lower their own interest rates to support growth without risking sharp currency weakness.”
As such, he recognised a broader reassessment of emerging markets is now justified. To this end, he suggested these economies were extracting themselves from a period where they were influenced by almost every move the US Federal Reserve or China made.
Further, he argued countries that used the last cycle to strengthen policy credibility are now better placed to benefit.
Specifically, he identified South America as a potential beneficiary, supported by valuations and earnings trends. Here he noted signs of a shift toward market-friendly policies in countries such as Chile.
He also nominated Asian economies as being attractive due to heavy global investment in artificial intelligence that is driving demand for physical infrastructure and the fact these regions are central to the technology supply chain.
While Chinese technology stocks have rallied, he viewed this as a short-term adjustment rather than confirmation of a sustained recovery.
“A broader re-rating of Chinese equities will require stronger fiscal support aimed at the domestic consumer,” he said.
Looking ahead to 2026, Schroders expects leadership to broaden beyond the US, where valuations remain elevated.
For investors, Mullins predicted this is one of the more attractive opportunities emerging markets have offered in recent years.
“In 2026, we may be paying the same attention to the economic decisions made in Sao Paulo and Mexico City as the next move in Washington,” he pointed out.