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Rob James

Market Outlook

Emerging Markets (Unconstrained) Outlook

Outlook
12 April 2026

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Emerging Markets Portfolio Manager

Latest Emerging Markets (Unconstrained) economic and market outlook. 

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We remain constructive on the outlook for EM equities. Earnings momentum is improving across much of the asset class and, importantly, the breadth of revisions is broadening beyond a narrow group of large-cap index constituents. Relative valuations remain attractive versus developed markets and ownership levels are low. US dollar weakness is another important pillar of our thesis. Whilst recent geopolitical events have seen the dollar strengthen, we believe this will be temporary as the US continues to face structural fiscal pressures, and Trump’s erratic style of leadership is undermining investor trust.

The escalation of tensions in the Middle East over recent weeks has understandably raised concerns around energy prices, global growth and broader risk sentiment. While the situation remains fluid, our assessment at this stage is that our portfolio is relatively well positioned to navigate the potential market consequences of the current geopolitical shock.

In our view, the portfolio’s country and sector exposures provide a degree of insulation from the most vulnerable areas of the Emerging Markets universe. This insulation reflects both our regional allocation and our sector positioning.

We are meaningfully overweight Latin America, where several of the economies represented in the portfolio stand to benefit from firmer commodity prices. Brazil and Argentina are key examples. Both economies have important commodity linkages and therefore tend to see improved terms of trade when energy and broader commodity prices strengthen. This positioning has been supportive for portfolio performance during the recent period of market volatility.

By contrast, we remain meaningfully underweight several markets that are structurally exposed to higher energy prices and external funding pressures, including India, Turkey and Thailand.

As a major importer of hydrocarbons, the current oil price shock is a headwind for the growth outlook in India, given that the country has a negative oil and gas trade balance of c.3.4% GDP, the third highest in Asia behind only Thailand (5.5%) and Korea (4.3%). However, India has corrected to a level where valuations are no longer excessive. It is now trading marginally below its long-term average on forward earnings and in terms of its premium versus wider EM equities. After material share price corrections, we are closely monitoring several Indian blue-chip names, where valuations are becoming disconnected from fundamentals. That said, we are likely to remain underweight the market in aggregate. Adjusting for growth, India still looks relatively unattractive to us, with a negative earnings differential versus MSCI EM of -25% in calendar 2026, and -2% in 2027, using consensus estimates. From 2024-27, Indian earnings are expected to lag the EM index, which weakens the argument for paying premium valuations for Indian equities.

At the sector level, we maintain a relatively cautious stance toward economically sensitive cyclicals, while retaining significant exposure to structural growth areas, particularly within technology. Importantly, as we have mentioned previously, the current technology cycle appears fundamentally different from previous cycles. In earlier periods, technology demand was heavily driven by consumer electronics and therefore highly sensitive to global shocks. Today, a significant portion of demand is being driven by US hyperscalers’ capital expenditure related to artificial intelligence and data infrastructure. With major technology platforms continuing to commit substantial investment budgets, this demand base is proving far more resilient to short-term fluctuations in energy prices or consumer confidence, and we continue to see upward earnings revisions in our meetings with management teams across the sector.

Korea is a good example of how this technology exposure is reflected in our portfolio positioning. We remain positive on Korea overall, although we have made certain adjustments over recent months to reflect the strong price performance seen across parts of the market.

While we continue to have conviction that the memory cycle remains strong and that earnings forecasts are still lagging the underlying demand picture, we have nevertheless taken some profit in Samsung Electronics given the stock has doubled since November. Importantly, these profit-taking decisions were made over recent months, prior to the recent geopolitical escalation. We have redeployed this capital into other Korean opportunities, including two new positions in discounted holding companies with attractive underlying operating assets.

Within the portfolio we have also taken steps to mitigate direct energy risk. Overall exposure to the energy sector is broadly neutralised through a combination of positions, including holdings in companies such as Vista Energy and Petrobras. These positions help offset the potential impact of higher oil prices on other parts of the portfolio without representing an outright directional bet on energy markets. Should geopolitical tensions ease and oil prices normalise, this balanced positioning ensures that the portfolio remains resilient across a range of energy price outcomes.

Another area worth highlighting in the current environment is gold. Our view has been that the rally in gold in recent years has been driven less by geopolitics and more by structural factors, particularly concerns around dollar debasement and sustained central bank buying.

Looking ahead, we remain convinced that the structural drivers of gold demand remain firmly in place. A significant component of this demand appears to be ongoing purchases by central banks, particularly in emerging markets. In China’s case, large external surpluses combined with relatively stable reported foreign exchange reserves suggest that part of those surpluses may be finding their way into gold purchases through financial flows rather than being reflected in traditional reserve accumulation.

This structural demand reinforces gold’s role as a hedge against geopolitical risk and potential currency debasement, particularly in an environment where central banks appear increasingly willing to diversify reserves away from the US dollar. Recent gold price weakness reflects generalised profit-taking rather than a change in these fundamentals, in our view. This price action during a time of rising global risk and inflation expectations is atypical, but does not change our underlying positive view.

Finally, we are ensuring that the portfolio is liquid, and have modestly increased cash relative to normal levels. This should provide flexibility to respond quickly to the rapidly developing situation, and to exploit any attractive opportunities created by ongoing volatility. As always, we continue to monitor developments closely and remain ready to adjust positioning should the geopolitical landscape evolve further. However, based on current exposures, we believe the portfolio is well placed to manage the potential fallout while continuing to focus on the longer-term opportunities across Emerging Markets.

Important Information:

Nothing in this document constitutes or should be treated as investment advice or an offer to buy or sell any security or other investment. TT is authorised and regulated in the United Kingdom by the Financial Conduct Authority (FCA).

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