Introduction to Emerging Markets
Emerging markets have been performing exceptionally well, particularly in the context of President Trump’s second term. While domestic financial markets have been doing well, international markets have been the real stars, with emerging markets equities and debt being notable performers. This phenomenon has led to the consideration of Exchange-Traded Funds (ETFs) such as the NEMD, which has returned nearly 4% in just a few months.
Performance of Emerging Markets
Investors in emerging markets have earned higher returns this year compared to those in developed markets, despite the challenges posed by U.S. trade policy. Emerging-market government bonds have gained 15 percent through September 30, while equities have risen more than 25 percent over the same period. This is based on benchmark indices such as the JPMorgan Emerging-Market Bond Index and the MSCI Emerging Markets equity index. The strong performance of emerging markets is a significant aspect of the Trump trade, with many emerging market currencies outperforming the greenback.
Drivers of Emerging Markets Upside
One of the primary drivers of the upside for emerging markets debt, including the bonds in NEMD, has been dollar weakness. As of the end of the third quarter, 10 of the 14 most prominent emerging market currencies were handily outperforming the greenback. This has resulted in local inflation pressures receding, giving central banks room to ease monetary policy. The dollar has been driven lower in part by expectations of Federal Reserve easing, which has helped NEMD notch some upside.
Impact of Central Bank Actions
Central banks in the developing world are making moves that are delivering benefits to bonds. Lower policy interest rates have boosted demand for emerging-market bonds, as investors seek to benefit from rising bond prices. Meanwhile, central bank easing has lifted expectations for stronger local corporate earnings, giving equities a lift. Should this trend continue, NEMD could be a stout performer again in 2026.
Conclusion
In conclusion, emerging markets have been a surprise performer in the context of President Trump’s second term. The strong performance of emerging markets equities and debt, particularly ETFs such as NEMD, has been driven by dollar weakness and central bank actions. As investors seek to benefit from rising bond prices and stronger local corporate earnings, emerging markets are likely to continue performing well. With the potential for further upside, it is essential for investors to consider emerging markets as a viable investment opportunity.
