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Emerging markets closed the fourth quarter of 2025 on solid footing, capping a strong year in which the asset class outperformed developed markets for the first time in several years. The MSCI Emerging Markets Index was up 4.76% for the quarter and finished the year up 34.29% on a total return basis, in US dollar terms, supported by broad-based earnings growth, valuation rerating and a weaker dollar. This performance marked a decisive shift away from the US‑centric leadership of the past decade as investors rotated into more attractively valued international opportunities.
Asia delivered mixed results. In China, Hong Kong listed Chinese equities (which are open to foreign investors) continued to outperform domestic locally listed (which are subject to foreign ownership limits), reflecting stronger foreign appetite for Chinese exposure amid still‑subdued domestic risk appetite. Chinese households have historically favoured high savings and tangible assets such as property and gold, and with the real estate sector still under pressure and gold prices elevated, there is scope for domestic equity demand to recover as confidence gradually normalizes.
South Korea and Taiwan remained the standout performers through Q4 and for the full year, underpinned by their central role in the global semiconductor value chain. Taiwan’s equity market ended 2025 at a record high, returning 27.42% (35.14% in USD) for the year. Total return for South Korea’s KOSPI was 78.67% (82.69% in USD) for the year – one of its strongest annual advances in decades – on the back of memory‑chip and AI‑related demand.
India’s NIFTY 50 returned 6.37% (5.09% in USD) in Q4 outperforming the broader EM index. Despite headwinds from tariffs and elevated starting valuations, the market was supported by resilient macroeconomic data. A backdrop of moderating inflation and improving growth allowed for easier policy conditions, specifically the Reserve Bank of India’s earlier rate cuts which helped cyclical sectors and domestic orientated names into year end.
Latin American equities were broadly strong in 2025, with the MSCI EM Latin America Index returning 55.71% on a total return basis, materially outperforming the broader EM index. The region benefited from the transition away from restrictive high real policy rates towards an easing policy environment, resilient commodity demand, and strong “nearshoring” narratives in markets such as Mexico and Brazil.
Within this backdrop, the LOM Emerging Market Fund returned 2.15% in the fourth quarter, bringing total return for the year to 24.79%. Allocations to tech in Taiwan and South Korea were amongst our top contributors, reflecting persistent global appetite for AI‑related infrastructure and related semiconductor demand. Bottom contributors for the quarter were China and Singapore. Chinese equities specifically, lagged their EM peers in Q4 due to a sharp correction in Chinese internet/tech sectors, triggered by weak domestic data, a firmer US dollar, and renewed concerns over China’s growth and policy outlook.
Looking ahead to the next quarter and into 2026, the focus remains on markets undergoing durable structural change: economies shifting labour and capital from low‑productivity activities toward higher‑value‑added sectors; countries pursuing reforms that are open to foreign investment and trade liberalization; and sectors poised to benefit from an extended EM rate‑cutting cycle and still‑supportive global liquidity. While the strong 2025 rally warrants selectivity, these themes continue to underpin a constructive medium‑term outlook for emerging markets.
The information contained in this article is for information purposes only, and represent the views of the author. It is not intended as specific investment or financial advice, or a recommendation or solicitation to buy or sell any security. Any investments or strategies listed in this article may not be suitable for all investors. Past performance is not indicative of future performance, and as with any investment, prices may fluctuate. It is recommended that advice is sought from a qualified investment professional prior to implementing any financial plan. LOM has made every effort to ensure that the contents herein have been compiled from sources believed reliable, however LOM does not warrant the accuracy, adequacy, timeliness, or completeness of this information expressly disclaims liability for errors or omissions in this information.
