A new report from VanEck has reinforced the new tailwinds for emerging market focussed ASX ETFs.
According to Anna Wu, Senior Associate, Cross-Asset Investment Research, last year marked the strongest annual performance for emerging market equities since 2017.
She believes there are a number of drivers that could support this momentum throughout 2026.
Image source: Getty Images
US dollar weakness
According to last week's report, assuming historical patterns hold, US dollar down cycles tend to persist once they begin.
In 2026, factors such as high US government debt, easing monetary policy, and slowing US economic growth could contribute to further dollar weakness.
Additionally, the US dollar's share of global foreign exchange reserves has declined to its lowest level since the mid-1990s, suggesting a broader move away from dollar dominance.
A weaker US dollar typically boosts the strength of emerging markets currencies, making exports cheaper, improving revenues and contributing to outperformance in this environment.
Emerging markets are positioned for growth tailwinds
The report from VanEck also reinforced that emerging economies are growing at almost twice the rate of developed markets.
This is along with relatively stable inflation, which positions them as the world's primary growth drivers.
On a corporate level, street analysts are pricing in an upbeat earnings outlook for emerging markets companies, circa 20% EPS growth over the short and medium term. This highlights the upside potential for continued earnings growth.
Valuations of emerging markets corporates also appear more attractive compared to their developed markets peers, at a 25% relative discount and at an absolute level closer to the historical average.
Key markets to watch
VanEck pointed to South Korea and Taiwan as markets that have performed well recently.
It said investors have been chasing exposure to the AI 'picks and shovels' trade.
These are the companies that supply the core building blocks of artificial intelligence rather than end-use applications. These markets are among the world's top providers of semiconductors.
It also highlighted India as the next potential growth driver in emerging markets.
India's strong GDP and earnings growth, coupled with easing policy and strong corporate earnings growth, reinforces its potential to return as a key emerging market outperformer this year.
Additionally, the country could be a beneficiary of the global AI infrastructure buildout, with US tech giants such as Google and Microsoft continuing to increase capital expenditure (CAPEX) commitments in the country.
This sentiment is also shared by Global X who also identified India as a structural growth market in a report last week.
How do investors gain exposure to emerging markets?
For broad exposure to emerging markets, there are several options including:
- VanEck Msci Multifactor Emerging Markets Equity ETF (ASX: EMKT)
- iShares MSCI Emerging Markets ETF (ASX: IEM)
- Vanguard FTSE Emerging Markets Shares ETF (ASX: VGE)
For geographic specific ASX ETFs for the aforementioned countries:
