Do you think the perception of emerging markets as a traditional source of geopolitical risk is changing?
Emerging markets remain exposed to risks linked to domestic policies. However, as developed markets become increasingly unpredictable, the political risk gap between the two has narrowed.
Do you anticipate an increase in inflows to funds invested in emerging markets in 2026? Which emerging regions are currently attracting the most capital?
We continue to anticipate positive net flows into emerging markets funds for the remainder of 2026. After a strong first two months, the war in the Middle East and the uncertainties surrounding it have disrupted flows. We anticipate a return of flows towards this asset class once an agreement is reached between the United States and Iran. The Trump-Xi summit is likely to accelerate peace negotiations. Since the start of the war, flows to Latin America have been the most regular.
Which emerging markets do you think are best positioned to benefit from the new geopolitical and economic context? Where do you see the most attractive valuations today?
We anticipate that Latin America will be best positioned to benefit from the growing US focus on the Western Hemisphere. As economic security has become a priority, Latin America also offers strategic mineral resources. Within the region, Brazil appears attractive. As a net oil producer, it has benefited from rising oil prices. Higher earnings expectations in the oil sector, combined with the recent decline in the MSCI Brazil, have reduced the 12-month forward P/E to 9x, compared to a ten-year average of 12x.
To what extent could a weaker dollar act as a catalyst for emerging assets?
We continue to anticipate a weaker dollar in the medium term. However, the current strength of the American economy compared to predominantly oil-importing countries could prevent a significant decline in the dollar for the remainder of 2026. We therefore do not anticipate a significantly weaker dollar this year.
What is the main risk today likely to hinder the return of flows to emerging markets?
The main risk remains the inability of the various parties to the conflict to reach, in due time, an agreement allowing the reopening of the Strait of Hormuz. Oil stocks have been falling, and a delay in a peace agreement would likely lead to a further rise in oil prices as well as a new episode of risk aversion in the markets, causing capital outflows from emerging markets.
