Martin Fechtner, CFA, Portfolio Manager ; Jacqueline Blomendahl, CFA, Portfolio Manager and Thierry Misamer, CEFA, CIIA, Portfolio Manager, ODDO BHF Asset Management.
Where growth meets innovation
Emerging markets are often associated with volatility, political uncertainty and currency risk. Yet for long-term investors, they can also represent a source of growth, innovation and global diversification through exposure to economies whose growth prospects, in some cases, remain stronger than those of developed economies. The asset class is no longer simply a niche allocation. Despite the recent downward revisions to growth forecasts, emerging economies account for a significant share of global economic activity while continuing to contribute to its growth. According to the IMF, global growth is expected to remain moderate in 2026, while emerging market economies are still projected to grow at a higher pace than advanced economies.
For investors, this growth premium matters. Emerging markets provide exposure to economies that are benefiting from rising household incomes, an expanding middle class, urbanisation, infrastructure investment and advanced technology. These structural forces can support domestic consumption and corporate earnings over the long term.
At the same time, emerging markets offer access to regions and sectors that are often not fully represented in traditional US- or Europe-focused portfolios.
A broader source of portfolio diversification
For investors, emerging markets can play an important role as a diversifier within a global equity allocation. Their economic cycles, currencies, sector exposure and domestic growth drivers often differ from those of developed markets. This can help reduce dependence on a narrow set of developed-market drivers, particularly at a time when many global portfolios remain heavily concentrated in US equities and large-cap technology stocks.
This diversification argument has become increasingly relevant. After years of US market dominance, many investors are looking for broader sources of return. Emerging markets may offer exposure to different earnings cycles and different long-term growth themes. Importantly, the asset class has also become more diverse internally. While China remains important, the rise of technology and artificial intelligence (AI) has increased the significance of South Korea and Taiwan, with India also representing a substantial and well-established component, making the EM universe more attractive.
From commodities to technology leadership
A key change over the past decade is that emerging markets are no longer only about commodities, banks or low-cost manufacturing. Several countries now sit at the heart of global innovation.
Taiwan and South Korea are critical to the global semiconductor value chain, while China remains a major force in e-commerce, electric vehicles, batteries, AI and advanced manufacturing. This means that investors in emerging markets are not only investing in domestic consumption stories, but also in key enablers of global technological transformation.
