UK retail investors are eyeing opportunities to enter emerging markets as they look to sidestep domestic economic problems.
Growing economies across Africa, Asia, Latin America and Europe are enticing investors away from placing all their capital into developed markets in search of higher returns overseas.
Larger, more mature economies are suffering the consequences of Trump’s tariffs, geopolitical tensions and weaker currencies, sparking a renewed drive to diversify and freeing up space for less developed markets to elbow onto the investment scene.
According to research from Fidelity International, nearly 15 per cent of investors believe emerging markets are presenting good investment opportunities for the financial year, with fund performances reinforcing investor optimism.
Certain funds available on Fidelity’s personal investing platform with exposure in Asia have become particularly popular over the first half of the financial year.
Andrew Oxlade, investment director at Fidelity International, said: “We’re seeing selective opportunities emerging in global markets this year, and for some investors, emerging markets are coming back into focus.”
“Recent fund data supports this too.”
Dollar losing its power
A string of soft job reports showing growing unemployment, coupled with the stock market dealing with tariff fallout, has caused the US dollar to lose its global standing and power in recent months.
In response, sterling has strengthened against the dollar, trading at $1.35, while the euro is trading at $1.17.
For emerging markets, the advantage is the ability to reduce the cost of “debt burdens” hanging over their central banks.
Emily Fletcher, Co-manager of the BlackRock Frontiers Investment Trust, said: “Whilst the global economic landscape so fair in 2025 has been shaped by geopolitical uncertainty and tariff worries, emerging markets have done well.”
“A weaker US dollar has been beneficial in that regard, by easing debt burdens and attracting foreign inflows.”
Many emerging market countries hold crushing dollar-dominated debt, but as the currency weakens so has the amount needed to be paid back to the US, allowing funds instead be used to “stimulate economic activity.”
Oxlade said: “A weaker dollar reduces the cost of servicing dollar-denominated debt, which many EM countries hold, and encourages money into non-dollar assets.”
“It also provides a boost to commodity prices…this environment supports EM central banks in maintaining or even lowering interest rates, which could help stimulate economic activity.”
Rate cuts fuelling spending
Lowering interest rates in line with larger economies encourages more spending and investment without fears of its currency depreciating in the short term.
Coupled with growing populations and urbanisation bolstering the labour market workforce across many emerging markets, it is helping them become more lucrative to both investors and fund managers.
Fletcher noted that Kenya in particular has delivered optimal returns for investors due to “interest rate cuts, a stable current and interest amongst foreign investors.”
Similar returns have been produced in Pakistan, Hungary and Bangladesh.
Proceed with caution
Whilst smaller markets are luring in investors, fund managers and analysts have warned that typically risk averse investors should think carefully before taking the leap.
Emerging markets can ride the wave of developed market turmoil. But they also tend to experience higher volatility and lower liquidity which in turn can drive their economies into crisis.
Oxlade cautioned investors that even though emerging markets “may continue to offer diversification and long-term growth potential” they remain “better suited” to investors who understand the risks presented and are able to take a long-term view.