Emerging markets are shaping up to be one of this year’s standout trades.
The world’s largest asset managers — overseeing more than $20 trillion of assets — are buying EM stocks, local currency bonds and credit on bets that strong global economic growth and a weaker dollar will favor these markets, analysts from Citigroup Inc said after reviewing the funds’ published outlooks.
The shift also reflects a murkier backdrop in developed markets as policy uncertainty and fiscal concerns have weighed on sentiment, with bond yields surging in the US, Japan and Germany. The MSCI Emerging Markets stock index is at a record high, while trading volumes in related exchange-traded funds have also surged.
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Citi said fund managers have added to long positions in equities across Asia, Latin America, as well as Europe, the Middle East and Africa. EM bonds are their top duration call, in contrast with short positions in US Treasuries and core European sovereign debt. In credit, EM debt carries the biggest overweight, while US investment-grade bonds remain a popular underweight, the bank said.
Even as global markets were rattled this week by concerns that artificial intelligence could disrupt large swaths of the economy, EM assets have continued to do well. The MSCI EM Index climbed as much as 0.7 percent to a fresh record high on Thursday, buoyed by a surge in Asian technology shares and a weaker dollar.
A Bloomberg gauge of EM local currency government bonds has returned 2.2 percent so far this year, after annual returns of 8.5 percent last year that was the best since 2017. A similar index tracking sovereign dollar bonds is up 1.7 percent in 2026, after a 13 percent increase last year.
Gold has also stayed popular as a source of stability, Citi said. Fund managers have added positions in precious metals during the recent rally, citing strong central bank demand and the weaker dollar outlook.
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“There is no disagreement in long gold and short USD views,” the bank added.
