with Australia as the notable exception<\/a>. It argued that this environment is creating a \u201cstable macro backdrop\u201d for EM economies, despite occasional policy-driven volatility.\u00a0<\/p>\nWith trade policy uncertainty easing since last year\u2019s so-called\u00a0\u2018Liberation\u00a0Day\u2019\u00a0tariff announcements, the firm said EMs should continue to\u00a0benefit\u00a0from a risk-on stance, supporting capital flows and\u00a0stronger currencies.\u00a0<\/p>\n
It cited strong investor demand as evidence, with 2025 seeing record inflows of US$152 billion\u00a0into EM debt ETPs and US$103 billion\u00a0into equity ETPs, according to BlackRock and Markit.\u00a0<\/p>\n
Meanwhile, BlackRock said it is also seeing mega forces\u00a0such as AI companies in South Korea and Taiwan\u00a0trump the traditional macro in EM.\u00a0<\/p>\n
\u201cThe AI theme has broadened out to markets like South Korea and Taiwan over the past year, with their strength in manufacturing AI hardware \u2013 especially semiconductors \u2013 driving gains,\u201d the firm\u00a0stated.\u00a0<\/p>\n
The recent surge in AI spending plans by US mega-cap tech companies\u00a0is\u00a0\u201canother positive\u201d,\u00a0with Alphabet, Amazon and Meta having\u00a0announced\u00a0over US$660 billion\u00a0($940 billion) in planned AI investment this year.\u00a0<\/p>\n
Since EM economies are central to the AI buildout \u2013 from industrial metals to manufacturing supply chains \u2013 it believes they are set to benefit.\u00a0<\/p>\n
\u201cWe also see persistent supply constraints pushing up commodity prices, another potential boost for EM \u2013 especially Latin America,\u201d it added.\u00a0<\/p>\n
At the same time, while EM performance has now broadened beyond the AI theme, BlackRock noted there is still significant dispersion among the asset class.\u00a0<\/p>\n
While North Asian AI powerhouses such as South Korea have surged 21 per cent, other economies such as India remain behind. This is despite a recent US trade deal that removed a 25 per cent tariff on its exports to the US and lowered the reciprocal tariff to 18 per cent.\u00a0<\/p>\n
Meanwhile, Schroders has noted that\u00a0roughly half\u00a0of the countries in the MSCI Emerging Markets index are now expensive compared with historical levels.\u00a0\u00a0<\/p>\n
However, it\u00a0emphasised\u00a0that this varies widely, with AI powerhouses like Taiwan showing a high Combined Z-score of 2.1, while Brazil\u00a0remains\u00a0at a neutral 0.0. It added that all markets are now in expensive territory.\u00a0<\/p>\n
Investment response\u00a0<\/p>\n
In response to the differentiation across EM economies, BlackRock argued that investors will be rewarded by an active, selective approach across both equities and bonds.\u00a0<\/p>\n
As such, in equities, it said it is focusing on markets set to\u00a0benefit\u00a0from increased AI capex.\u00a0<\/p>\n
\u201cWe\u00a0favour\u00a0leaders in China\u2019s new economy \u2013 AI,\u00a0automation\u00a0and renewable energy. We also see the rewiring of global supply chains\u00a0benefiting\u00a0Mexico,\u00a0Brazil\u00a0and Vietnam, while stronger commodity prices are a boon to Latin America,\u201d BlackRock concluded.\u00a0\u00a0<\/p>\n
Meanwhile, in bonds, it said hard-currency EM debt\u00a0remains\u00a0appealing\u00a0relative\u00a0to the themes in developed markets.\u00a0<\/p>\n
\u201cWe lean into EM with our overweight to hard currency EM debt. Improved fiscal policy in some large EM countries stands in contrast to our theme of\u00a0leveraging\u00a0up happening in DM.\u201d\u00a0<\/p>\n
The asset manager added that it\u00a0favours\u00a0high-yield EM issuers and views increased dispersion as creating opportunities for active returns. Highlighting upcoming elections and potential currency volatility \u2013 such as Brazil\u2019s October vote on whether President Lula will serve a fourth term \u2013 it said this is another\u00a0reason why\u00a0it\u00a0favours\u00a0EM hard-currency bonds over local currency.\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"With emerging market bonds and equities off to a flying start for 2026 with their strongest monthly return…\n","protected":false},"author":2,"featured_media":472864,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,16166,99,164],"class_list":{"0":"post-472863","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-au","9":"tag-australia","10":"tag-blackrock","11":"tag-business","12":"tag-economy"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/472863","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=472863"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/472863\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/472864"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=472863"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=472863"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=472863"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}