BNY Investments: The emerging markets renaissance
AI, resilient trade and a weaker dollar are turning heads towards the countries driving global growth. Emerging economies haven’t looked this promising in years.
By Rodica Glavan
Written off and rediscovered, the world’s up-and-coming economies have a long record of reappearing through cycles. Sure enough, they are back, and the bull run may only just be starting. What is more, today’s backdrop looks more durable than a typical rebound. The IMF says emerging economies have grown faster than advanced economies every year this century. And by the end of 2025, the growth differential widened to 2.6 percentage points – its highest level in a decade. Put simply, when emerging economies grow faster than their developed peers, capital tends to flow into them.
We believe three big structural changes are behind it.
1) Emerging markets are fuelling the AI tech boom
If trade is the backbone of emerging markets, then AI is the topic du jour of this era.
Tariffs, trade restrictions and talk of an AI bubble may have stirred anxiety, but some Asian markets have quietly positioned themselves at the centre of the AI ecosystem – one that looks set to stay with us forever.
If you ask people which companies they think of when they hear AI, they will all say the same big US tech companies, the so-called Magnificent Seven. But those companies rely on an elaborate network of chip makers, advanced packaging and hardware manufacturers. A network anchored in Asia.
So, while some of the American tech titans stand to make hefty profits from AI, so will the hardware manufacturers in countries like South Korea and Taiwan. And it doesn’t stop there, because the hardware makers depend on industrial metals and mined minerals like copper, lithium and rare earth metals, all largely exported from other emerging nations. Chile alone supplies over a quarter of the world’s copper output and is seeing demand spike from AI data centres.
As AI investment scales, emerging markets that produce energy and critical minerals gain pricing power and volume certainty. That flows straight into stronger export receipts and better terms of trade. Asian hardware hubs buy commodities from Latin America, Africa and other parts of Asia, which expands EM-to-EM trade and cuts reliance on single routes.
Rather than a cluster of US tech companies, AI is a global super-network of hardware, software, and infrastructure.
This is pushing up the price of commodities, which is positively affecting emerging markets at both macro and micro levels. For commodity exporters, higher prices are strengthening fiscal positions and external balances. Crucially for the long term, this rally for commodities isn’t just a by-product of a weaker dollar or improved risk appetite – it’s driven by genuine demand from a transforming global economy.
Put simply, when emerging economies grow faster than their developed peers, capital tends to flow into them.
The Chinese infrastructure boom that dominated EM markets has been overtaken by a demand for energy and AI. We’re seeing stronger exchange rates, rising currency reserves and, in some cases, a quicker-than-expected pivot towards dovish monetary policies, which are creating a more supportive environment for corporates.
By providing both critical commodity supplies and essential manufacturing hubs, emerging markets could be at the heart of this new technological era for years to come.
2) Trade resilience
Trade in emerging markets’ is proving resilient, too. Even amid tariffs and trade restrictions, many emerging economies have maintained healthy trade volumes. And demand is everywhere. Global AI investment is a boon for Taiwanese semiconductor makers, and there is a stronger manufacturing presence in India.
The need for multi-node production is growing the semiconductor and electronics supply chain, while trade routes for energy and metals have shifted towards emerging market producers. High-frequency indicators (real-time data points that help track economic activity) are showing that export orders and customs volumes have stabilised in important trade routes despite westbound shipments wavering.
Countries across the globe are buying energy and metals from emerging markets, while flexible contracts have softened the effects of tariffs and sanctions.
And with more buyers and sellers from other emerging markets, trade volumes have remained steady, even as westbound shipments wobble. This means emerging markets are exporting more essential products to more countries, which gives emerging market exporters a stronger hand on pricing. In turn, that supports their external balances, which can strengthen local currencies.
3) A weaker US dollar
A strong US dollar has traditionally been a headwind for emerging markets. It increases the cost of servicing dollar-denominated debt. At the same time, it weakens EM currencies and erodes investor returns. This has been the status quo for much of the past 15 years, but since early 2025 the dollar has steadily softened. And when the greenback weakens, the opposite effect takes hold. Debt burdens ease, commodity prices generally rise, local-currency returns improve, and EM central banks gain greater monetary-policy flexibility.
The US remains the world’s deepest capital market, but its structural advantages are beginning to creak as policy volatility weighs further on the currency. Historically, periods of large US twin deficits have also coincided with weaker-dollar policies aimed at correcting those imbalances.
Rather than a cluster of US tech companies, AI is a global supernetwork of hardware, software, and infrastructure.
These shifts matter enormously for global capital flows. Even modest reallocations away from pricey US assets towards undervalued emerging markets can generate outsized returns. And capital leaving the US has to settle somewhere, often in higher-growth EM economies.
In 2025, around one third of the roughly $ 33 billion invested in US assets by foreign investors originated from emerging markets. Despite this, global investors remain under-allocated to emerging markets. But a rotation out of US assets, resilient EM growth and a softer dollar are starting to reverse the trend.
A weaker US dollar adds more power to this turn. First, it tends to improve global liquidity conditions, as lower hedging costs and reduced dollar funding stress make it easier for EM corporates and sovereigns to raise capital. Second, a softer dollar often coincides with stronger global risk appetite, supporting equity and bond inflows into regions with superior growth trajectories. Together, these forces strengthen the three pillars (growth premiums over developed markets, credible policy frameworks, and supportive global financial conditions), which leaves emerging markets primed for further growth.
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SUMMARY Emerging markets are back, helped by faster growth, resilient trade, and strong demand for commodities. The AI boom is lifting hardware makers and resource exporters, from Asia to Latin America. Trade has held up surprisingly well, with more diverse buyers keeping volumes steady. |