By Simbarashe Mangwiro, senior investment analyst at Morningstar Wealth

The first half of 2025 has kept investors on their toes. From the Trump administration’s fast-moving policy agenda to rising geopolitical tensions in Europe and the Middle East, global markets have been anything but quiet. Yet amid the volatility, one theme has stood out: the resurgence of emerging markets.

Investors look beyond the US

Washington’s aggressive trade stance has sparked uncertainty around the US fiscal outlook and the dollar’s safe-haven status. In response, investors have been reallocating capital beyond US borders, seeking diversification and value. Emerging markets – particularly Korea and Latin America – have emerged as standout beneficiaries, as low starting valuations for both markets and favourable currency dynamics for Latin America have helped to drive renewed investor interest.

See also: The emerging market of the Middle East 

Korea: A new presidency sparks a market revival

Following a challenging 2024 – marked by political uncertainty and stock-specific headwinds for index heavyweights such as Samsung – Korean equities have staged a strong comeback in 2025. The rally has been fuelled by a wave of optimism surrounding the election of President Lee Jae-myung in June.

His administration has pledged sweeping reforms, including enhanced corporate governance and a renewed focus on economic revitalisation. These commitments have served as a catalyst for renewed investor confidence, particularly in sectors positioned to benefit from long-term structural change.

Latin America: The surprise comeback

Latin America has delivered one of the most unexpected rallies of the year. After a difficult 2024, weighed down by macroeconomic and political headwinds in Brazil and Mexico, the region has rebounded sharply.

Although President Trump has recently threatened a 50% tariff on Brazilian exports, Brazil’s exemption from the most punitive initial Liberation Day tariffs – combined with Mexico’s progress in trade negotiations with the US – has helped restore investor confidence and drive strong performance across Latin American equities in the first half of the year.

Beyond the bounce: Emerging markets set for more gains

Despite the impressive gains year-to-date, we believe the emerging market story is far from over. Valuations remain attractive and we remain bullish on the region. Latin American equities for example, remain notably unloved at a price-to-earnings ratio of 11.5x — which is around the 18th percentile relative to historical levels.

We like the prospects of rate cuts in Brazil, which could drive real yields lower and bring local investors back into equities. We are also constructive on Mexico, a defensive market that has upside potential from any potential integration with US supply chains as US onshoring gathers pace. We are keeping a close eye on the renegotiation of the United States–Mexico–Canada Agreement, where any positive news could provide further impetus to the current market rally.

While not as deeply discounted as Latin America, equity valuations in Korea and China are still undemanding, with multiples around the 40th percentile compared to their respective historical ranges. Korea remains an exciting opportunity for us, and we believe there is still some ground to cover on the corporate governance side.

We’re also optimistic about the prospects for Korea’s tech sector, which is well positioned to benefit from the global AI boom. We are looking out for Samsung’s qualification to supply high-bandwidth memory (HBM) chips to Nvidia – a development that could provide a meaningful boost to both market sentiment and performance.

Although China has been in the firing line over trade under the new Trump administration, it has begun to recover from an oversold position. Investor positioning remains light and further progress on trade negotiations with the US could set up conditions for a sustained rally into the year.

Portfolio implications

At Morningstar Wealth, our portfolios have maintained an overweight position to emerging markets, particularly in areas such as Korea, Latin America, and China, where sentiment and investors positioning has been light. The result of this is that our portfolios have benefited significantly this year, as emerging markets have outperformed the broader US market – where we remain underweight due to valuation concerns.

Looking ahead, we remain enthusiastic about the prospects for emerging markets and continue to leverage the depth and breadth of our research teams to uncover value and gain deeper insight into underappreciated areas of the global investment landscape. The future is uncertain, and our approach to portfolio construction remains focused around combining diversifiers with return enhancing assets in a balanced way that ensures that the portfolios can perform in various market environments.