For many investors, emerging markets still carry a familiar set of associations: political turmoil, currency and economic uncertainty. While these challenges have not disappeared, focusing solely on them may mean overlooking one of the more significant shifts unfolding in global markets today.
Emerging markets are expected to generate almost two-thirds of global economic growth over the next five years. That matters because, over time, the economies that drive growth tend to support the businesses that benefit from that growth through stronger earnings. China and India alone currently contribute almost 44% of global growth, underlining the scale of the opportunity.
At the same time, some of the previously favoured markets are facing their own structural challenges. The US remains the largest developed market, but it has run budget deficits for decades. As debt has ballooned and interest rates have risen, debt-servicing costs have become a growing constraint. These costs now exceed $1 trillion a year, absorbing funds that could otherwise have been directed towards infrastructure or other growth-supporting areas.
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The emerging market story, however, extends well beyond headline GDP growth. The more compelling case lies in the underlying currents shaping many developing economies: younger populations, rapid urbanisation, expanding wealth, rising technology adoption, and the infrastructure investment required to support these changes. These are not short-term cyclical trends. They are long-term structural forces that can support economic expansion for many years.
Demographics play a particularly important role. Younger populations tend to be more economically active, providing a stronger foundation for consumption and productivity. Urbanisation adds another dimension. In the US, roughly 80% of the population is already urbanised, whereas in India, only around a third of the country is. As urbanisation advances, it can support wealth creation, consumer spending and corporate profitability, while also driving demand for infrastructure, education and technology.
This does not mean emerging markets are free of fiscal risk, but the assumption that developed markets are inherently safer, while emerging markets are undisciplined, deserves scrutiny. Many emerging economies have already endured painful debt, currency and fiscal crises. In several cases, the outcome has been reform and greater discipline around fiscal management. On average, emerging markets now carry less debt than countries within the Organisation for Economic Cooperation and Development (OECD).
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Valuations add another dimension to the investment case. Emerging markets performed strongly during 2025 as investors anticipated an acceleration in earnings growth. That acceleration has largely materialised, yet ongoing geopolitical tensions have weighed on sentiment and left many emerging-market assets trading at attractive levels relative to their underlying fundamentals.
That does not mean investors should view emerging markets as a single opportunity. The opportunity is real, but the differences between countries, sectors and companies are significant. A passive approach can expose investors to risks that are difficult to manage after the fact. Russia is a reminder of this: it was once part of the emerging-market index, but geopolitical events and sanctions made it effectively uninvestable almost overnight.
Other markets show why selectivity matters. South Korea, for example, has produced strong businesses such as Samsung and SK Hynix, yet investors also need to consider the role of leverage in the market and how quickly it can unwind when share prices come under pressure. India has offered a compelling investment opportunity, but after attracting significant capital as investors looked for alternatives to China, parts of the market became expensive. In this environment, the ability to take profits, reassess risks and reallocate capital becomes critical.
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An active management approach to emerging markets is therefore key. Investors need managers who understand the nuances of individual markets, can assess geopolitical and economic risks, and are willing to reallocate capital as opportunities evolve. Emerging markets are not a passive investment story. They require careful country selection, disciplined risk management and a deep understanding of local conditions.
Written by Adriaan Pask, Chief Investment Officer at PSG Wealth