Time to consider emerging markets

Investment fashions come and go, but changing geopolitics and trade patterns may signal the start of a new cycle of emerging market outperformance – by Michael Shaoul

In the course of moving my office this April, I uncovered an old clipping file in which I had stored a collection of magazine adverts that caught my fancy. This of course, goes back to the period in which I subscribed to numerous daily and weekly printed publications, whereas in recent years I have consumed almost all of my media online. Publications such as Property Chronicle, that reward a physical reader are increasingly rare, and like most readers, I have migrated over to screen-based reading and trained my eyes to avoid anything that looks like an ad in the process.

While overall I view that as a beneficial shift, looking at the old clippings file, I realised how much it was both the editorial content and advertising that helped decode the cultural moment. For instance, in a professional publication for mortgage securitisation back in 2006, there was an ad of a fictional borrower wearing a leather jacket and jeans, with the caption “When your originator says no, we say yes!”, which really helped crystallise our views on the risks then building in the subprime mortgage market.

The impetus for the current column was a clipping of a bank advert, which had a drawing of six Matryoshka, each of which had been adorned with clothing representing a different country, with the header “in the future, there will be no markets left waiting to emerge”. The copywriter probably did not mean to unintentionally pay homage to John Maynard Keynes’s famous line “In the long run we are all dead”, but no doubt lawyers will have been happy with the somewhat nebulous promise, while the bankers will have enjoyed the notion that their institution was riding a wave of inevitable prosperity and progress.

The decade following the publication of the ad did no favours either to its subject matter or the bank itself, which found itself in the crosshairs of the US regulators for widespread money laundering infractions, most of which originated in its emerging market franchises. However, in a delicious irony, at the point that I rediscovered the ad, I was allocating a larger weight to emerging markets than I had for at least 15 years.

Perhaps a more honest, but less effective tagline would have been to channel the book of Ecclesiastes, whose third chapter starts “to everything there is a season, and a time to every purpose”. As general investment advice, it is hard to argue that this can be bettered, but the tricky part is identifying the time in question.

With regards to emerging markets, it is our belief that we are roughly 18 months into a multiyear period of outperformance for the overall MSCI Emerging Market index against a classic US benchmark such as the S&P 500 index. This follows a roughly 15-year period of underperformance, which was punctuated by a few shortlived reversals. The longest one is the gap between the post-Brexit bounce that took hold in December 2016 and ended with the outbreak of US/China trade hostilities in April 2018.

One of the reasons why we believe relative performance has changed is the resilience of the asset class in the face of much greater disruption to trade relationships. We have outlined before how the process of Fragmentation has realigned trade relationships in a manner that is broadly beneficial to emerging markets, particularly those able to serve both the US and Chinese markets. 2026’s geopolitical shocks in Venezuela and Iran harden this belief but further split the differences between commodity-rich emerging markets and those relying on other forms of wealth creation for their economies.

We very much favour the former, particularly those located in Latin America, which is rapidly becoming the cleanest geopolitical shirt in an increasingly grubby global closet. Although at the time of writing it is impossible to know how long supply lines from the Gulf region will be severely disrupted, even in the best-case scenarios, the urge to use Latin America production as a second source of supply will have been raised considerably. Geography also favours this region, not least because while the US security umbrella in the Middle East may have become somewhat tattered in recent months, its primacy in the Western Hemisphere is not open to question.

Two other factors act in the region’s favour. Its electoral system has always been subject to populist urges, and therefore, its democratic structure has arguably deteriorated less than those in the US or Europe in recent years. Although they remain of lower quality overall (military dictatorships were in control over much of the continent in living memory), on a relative basis, they have improved simply by standing still. This is even truer of monetary policy. Latin American central banks never allowed
themselves to be seduced by the siren of ultra-low interest rates or large-scale asset purchases and find themselves much better positioned to resist any new inflationary impulse that results from the conflagration in Iran.

We would not claim to be the only people to be holding these views, but so far, the bulk of investment capital that we have seen increasing their holdings of Latin American assets has come from institutions that generally would be looking for a quick trading profit rather than a longerterm commitment. This suggests we are still fairly early in the investment cycle. Certainly, we are yet to see a wave of product innovation, fund launches, debt and equity issuance that indicates to us that a cycle is getting long in the tooth. Although the ride might get bumpy along the way, a trip to Latin America looks like a worthwhile
diversion for most portfolios.

This article was originally published in The Property Chronicle Magazine – Summer Issue 2026.

Read more from Michael Shaoul here at The Property Chronicle.