Despite the risks of Donald Trump’s aggressive protectionist agenda, the mood among policymakers and central bankers at the Conference for Emerging Market Economies in AlUla, Saudi Arabia, this week was cautiously upbeat. Assets across the ragtag grouping of economies have been on a tear. Last year, benchmark equity indices in countries including South Korea, Poland and Vietnam more than doubled the S&P 500’s 16 per cent gain. Returns on local-currency bonds and sovereign credit outpaced developed markets too. The rally has rolled on into 2026.
A weak dollar, in part a byproduct of the US president’s capricious approach to policymaking, has helped. International investments now look more attractive, and developing economies’ dollar debts and import costs have fallen. In other words, as America has started to display traits investors often associate with risky emerging markets, actual EMs have prospered. But the desire to diversify US-centric portfolios and the softer dollar are not the whole story. There are structural drivers, too.
First, developing nations are far more resilient than they used to be. Research by the IMF shows that portfolio outflows, real GDP and exchange rates have become less volatile in emerging markets in response to risk-off shocks since the global financial crisis. There are exceptions, but this reflects more disciplined fiscal and monetary policy, and stronger foreign reserve buffers.