Investing in emerging markets (EMs) is rarely straightforward, with the asset class often swinging between exuberance and doubt, hype and indifference. Yet one constant remains: these diverse and dynamic regions consistently offer opportunities in overlooked areas.
The EM environment frequently shifts politically and economically, which impacts investor perception. Over the past decade, we have witnessed several occasions when sentiment has diverged from fundamentals, with China regularly at the centre of the oscillating attitudes.
Between 2017 and 2020, which was the ‘golden era’ for Chinese equities, global investors could not get enough of internet names such as Tencent and Alibaba. At the time, the natural question was not whether to own these stocks, but how much of the portfolio to allocate.
However, from 2021 onward, regulatory changes, geopolitics and slowing growth turned this enthusiasm into pessimism, and the companies were labelled mainly uninvestable. For investors who actively seek out forgotten stocks, that moment marked the start of the opportunity.
The past few years have provided reminders that opportunities often emerge from cyclical downturn
This cycle underscores a broader truth: with more than two dozen countries to invest in, EM is not defined by a single theme. At times, the narrative has been fixated on areas such as commodities, banks and technology, but the opportunity set is far wider than any individual sector.
Today, sentiment surrounding EM equities remains muted, despite the asset class strongly outperforming the US over the first nine months of 2025. However, much of the rally has been driven by a weaker dollar, rather than a meaningful increase in allocations from global investors. This dynamic creates room for further upside.
Uncertainty insulated by domestic drivers
While tariffs and trade wars have dominated discourse for much of the year, it is important to remember that most large EM economies are domestically driven, and growth has been more resilient than many feared.
China, for instance, has spent nearly a decade adjusting to a more protectionist global backdrop, reorienting towards self-reliance and domestic consumption. In many respects, it is better prepared for volatility than developed peers who are only now confronting supply chain fragility.
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The past few years have also provided reminders that opportunities often emerge from cyclical downturns. In late 2022, fears of a US recession and rising rates crushed cyclical sectors. This environment enabled us to add to companies like SK Hynix, which was reporting its worst margins in two decades at the time.
However, within a year, SK Hynix had become a key supplier of advanced memory chips for AI applications. This rapid turnaround illustrates how quickly forgotten stocks can regain relevance.
But while capital has flowed overwhelmingly into technology in recent years, we expect ‘old economy’ areas such as industrials, energy, mining and even banks to be at the forefront of investor interest from here.
As countries reindustrialise, rebuild defence capabilities and secure supply chains, demand is rising in many previously underfunded areas. Shortages in aircraft production or copper supply show how underinvestment can quickly translate into pricing power.
Under-the-radar progress in governance
Another striking change over the past decade has been the improvement in corporate governance across many EMs. Markets such as China and South Korea have carried reputations for opaque ownership, poor transparency and weak protection for minority shareholders. While once deserved, this perception is increasingly out of date.
EMs have always been defined by change – whether it be policy, perception, or performance
While the investment community has widely recognised Japan’s governance progress, China’s transformation has been quieter. Many Chinese companies are now conducting share buybacks and paying higher dividends, even the state-owned enterprises that once deprioritised shareholder returns.
Beyond governance, China has also made significant strides in addressing pollution and improving industrial standards. Environmental enforcement has tightened to the point where company leaders face serious consequences for violations.
South Korea, meanwhile, is in the early stages of its own reform cycle. Long viewed as a market where corporate control was concentrated and shareholder rights limited, South Korea’s ‘Value-Up’ programme echoes Japan’s governance push several years ago, and there are early signs that companies are responding.
EMs have always been defined by change – whether it be policy, perception, or performance. For investors willing to look beyond the headlines and explore underappreciated areas of the developing world, patience and perspective will continue to be rewarded.
Ernest Yeung is portfolio manager of T Rowe Price’s Emerging Markets Discovery Equity strategy
