Emerging Markets 2025: Sectors, Strategies, and Surprises (Midyear Update)

Good Investment Paths for the Second Half of 2025

The first six months of 2025 are behind us, and while the outlook for emerging markets remains challenging, it is also full of opportunities.

In this midyear report, we explore the most promising sectors, the most effective strategies, and some of the biggest surprises that have shaped emerging markets so far.

Global Landscape: The U.S. Context and Its Impact on Emerging Markets

The U.S. economy continues to be a key driver of global capital flows, maintaining its resilience throughout the first half of 2025.

Inflation has continued on a downward trajectory, but the Federal Reserve has adopted a cautious stance, keeping interest rates higher for longer than the market initially anticipated.

This decision had a direct impact on emerging markets, increasing the appeal of U.S. fixed-income assets and forcing a repricing of external risks.

At the same time, the outlook for stability and a potential monetary easing cycle in 2026 creates room for a gradual return of investor appetite toward riskier assets in developing economies.

Standout Sectors in Emerging Markets

While the “country-by-country” approach still matters, in 2025 global investors are increasingly focused on sector performance and cross-market themes that are emerging across the developing world.

Here are a few sectors and themes worth watching for investment opportunities:

Technology and Digital Infrastructure

In Latin America, the digital infrastructure sector is booming, with companies such as data center providers and cloud connectivity firms accelerating rapidly.

Countries like Brazil, Mexico, and Colombia stand out, and their firms are attracting North American and European venture capital.

Energy and Green Transition

In Asia, India and Indonesia have positioned themselves as strategic destinations for investments in renewable energy and the green transition.

Industrial green policies, combined with low production costs, have turned them into emerging hubs for solar panels, batteries, and green hydrogen.

Domestic Consumption

Population growth and expanding urban middle classes in African nations (such as Nigeria and Kenya) and Southeast Asia are boosting domestic consumption – especially in sectors like food, retail, and financial services.

Investment Strategies That Have Stood Out

Active Selection and Fundamental Analysis

With volatility still present in many emerging markets, active management proved its value in the first half of 2025.

Funds capable of performing careful selection of stocks and bonds—grounded in local fundamentals—outperformed broad indices (such as MSCI Emerging Markets), particularly in technology and healthcare sectors.

Thematic Bets

Beyond geographic allocation, there is growing adoption of thematic ETFs focused on megatrends such as digitalization, decarbonization, and urbanization across emerging markets.

This approach allows investors to tap into structural growth regardless of broader macroeconomic instability.

Local Currencies and Fixed Income

Institutional investors in the U.S. are revisiting their allocation to emerging-market fixed income, not just for returns, but also for its low correlation with U.S. assets.

2025 Surprises So Far

Turkey and Egypt: Unexpected Turnarounds

Two markets seen as high-risk in 2024 have surprised positively in 2025. In Turkey, a more orthodox monetary policy has restored a degree of investor confidence.

Egypt, bolstered by Chinese infrastructure investments and fiscal adjustments, has outperformed IMF expectations.

Argentina: Volatility Persists

Despite early signs of fiscal stabilization under the new government, Argentina continues to struggle with inflation and external credibility.

The peso remains volatile, and capital flows are still limited. The market continues to treat the country cautiously, demanding high-risk premiums.

China: Uneven Recovery

While China avoided a recession, its recovery in 2025 is far from even.

Export and tech-linked sectors have shown signs of life, but real estate and domestic consumption remain fragile.

Once the powerhouse of emerging markets, China now faces mounting concerns about long-term sustainability.

Key Opportunities for U.S. Investors

For U.S.-based investors, emerging markets in 2025 offer three key complementary opportunities:

1. Portfolio Diversification
   In an environment where U.S. assets are relatively expensive, emerging markets offer more attractive valuations.
2. Structural Growth Capture
   Despite political and currency risks, sectors such as green infrastructure, fintech, and digital health carry significant upside potential.
3. Smart Fixed-Income Allocation
   Local-currency debt in countries with falling interest rates and contained inflation offers positive real returns and growing appeal for pension funds and institutional managers.

Written by

Gabriel Gonçalves