Chetan Sehgal, Portfolio Manager at TEMIT, provides his latest overview of emerging markets, on the back of EM equities having collectively raced ahead of their developed market peers so far this year.
Emerging market (EM) equities declined in August 2025. While trade focus shifted to sectoral tariffs, global equity markets rose amid investor optimism about an interest-rate reduction by the US Federal Reserve. For the month, the MSCI EM Index returned -0.79% while the MSCI World Index rose by 0.51%, both in net UK-sterling terms.
Stocks in the emerging Asia region collectively fell. Indian equities were pressured by tariff headwinds, but easing inflation and the government’s plans to reduce the goods and services tax helped to pare some losses. Several large semiconductor companies in Taiwan and South Korea benefitted from an exemption from 100% import tariffs in the United States, contingent on their investment there, although they came under pressure later as they tracked a technology selloff in US markets.
Several sectors in China were beneficiaries of government policies—Chinese semiconductor firms rose due to the nation’s push to self-reliance. Improved optimism was also driven by an extension of current US tariffs on Chinese goods into mid-November, along with the Chinese government’s rollout of interest subsidies for loans to boost consumption.
Equities in the emerging Europe, Middle East and Africa (EMEA) region collectively declined. Global events, particularly US economic policy decisions and fluctuating oil prices, continued to play a crucial role in the region’s stock performance.
Equities in the emerging Latin America (LatAm) region generally rose. Investor confidence was bolstered during the period by market-friendly political movements and structural reform expectations in the region. In broad terms, Brazilian equities shrugged off roadblocks in the country’s tariff negotiations with the United States. Brazil announced a plan to support exporters affected by the US tariffs; the plan included a credit line. Mexico’s central bank reduced its benchmark interest rate, reaching its lowest level since mid-2022.
EM equities have collectively raced ahead of their developed market peers so far this year, despite initial fears that emerging economies would be hit hardest by global trade turmoil. The prospect of trade dislocation has acted as a headwind, but we believe positive long-term earnings drivers remain in place.
In Asia, rising semiconductor chip demand has solidified Taiwan’s status as a key player in global chip production. Confident outlooks from Taiwan’s semiconductor firms have emerged, as demand for artificial intelligence applications has outweighed the indirect effects of US tariffs. South Korea has unveiled a support package for its semiconductor industry in April 2025 to buffer the impact of any tariffs on one of the country’s principal export items. India’s economy is driven more by domestic demand and could be relatively insulated from the aftermath of any tariffs. China is also conducting a drive to remove overcapacity in its economy.
In recent developments, Brazil’s president unveiled a plan to support companies affected by US tariffs on some of the country’s exports. We believe that the market has priced in tariff-related noise, and from a long-term structural perspective, we believe that the reaction could have been overdone. We note that the Brazilian economy is not heavily dependent on exports, making it somewhat resilient to tariff shocks. There are also sizeable exemptions, such as civil aircraft, mining exports and fertilisers, which could help to limit the impact. Brazil’s key exports can also be redirected to other countries. Mexico is perceived to have managed the US trade negotiations better than its regional peer Brazil. Thanks to the US-Mexico-Canada Agreement (USMCA), Mexico benefits from broad exemptions to new US tariffs.
We find that EM companies are re-globalising in the face of global uncertainties. In our view, many corporations are likely to continue finding ways to trade with, or around, trade barriers. We seek to combine this adaptive resilience with our bottom-up view, in our continuous search for companies with long-term earnings power.
