（Singapore, 22.12.2025）As 2025 draws to a close, a dramatic shift is occurring in the world of global finance. For years, the smart money stayed safely tucked away in U.S. blue-chip stocks. But as we look toward 2026, the tide has officially turned. Emerging markets (EM) nations like Brazil, India, and Indonesia have transitioned from “uninvestable” overlooks to the most sought-after trade on Wall Street.
After a decade of lackluster performance, 2025 served as a historic “inflection point.” From record-breaking capital inflows to a resurgence in local currency bonds, the developing world is no longer just a risky bet—it’s becoming the anchor of the modern global portfolio.
The Great Migration: “Bears Have Gone Extinct”
The change in sentiment was perhaps most visible at a recent Bank of America investment conference in London. The event, which hosted hundreds of top-tier investors, revealed a startling lack of “bears” (investors who expect prices to fall).
“EM bears have gone extinct,” noted David Hauner, Bank of America’s head of emerging fixed income. This optimism is backed by hard data: 2025 saw the strongest rush of capital into emerging market securities since 2009. For the first time in nearly a decade, emerging stocks are actually outperforming their U.S. counterparts.
“The question a year ago was whether emerging markets were even investable,” says Sammy Suzuki, head of emerging-market equities at AllianceBernstein. “That’s no longer a query we receive.”
The rush toward the developing world isn’t just about what’s happening in Jakarta or Mexico City; it’s also about what’s happening in New York.
The U.S. stock market had a white-knuckle ride in 2025. In April, the S&P 500 teetered on the edge of a “bear market” due to fears of aggressive trade tariffs. While the market eventually recovered fueled by an artificial intelligence (AI) boom—the volatility left a scar. Investors began to realize they were “overexposed” to a handful of giant U.S. tech companies like Nvidia and Microsoft.
Currently, the 10 largest stocks in the U.S. make up nearly 40% of the entire market. This “top-heaviness” has pushed fund managers to look abroad for diversification. As the U.S. dollar weakened by about 8% this year, international markets suddenly looked much more attractive and affordable.
The “Carry Trade” and the AI Connection
It isn’t just stocks that are winning. One of the most profitable strategies of 2025 has been the “carry trade”—where investors borrow money in low-interest currencies to buy higher-yielding assets in emerging markets. These strategies haven’t seen this much profit since the post-recession recovery of 2009.
Major banks like JPMorgan and Morgan Stanley are now singing from the same hymn sheet. They predict that emerging markets will be major beneficiaries of the global AI explosion, as these nations provide the raw materials, manufacturing power, and growing tech infrastructure needed to sustain the boom. JPMorgan projects that as much as $50 billion could flow into emerging-debt funds in 2026 alone.
Are We in a Bubble?
Despite the euphoria, seasoned experts urge a bit of caution. Legendary investor Howard Marks recently warned that he is on “bubble watch,” noting that valuations for AI-linked stocks are reaching levels not seen since the pandemic.
There are also regional risks. China remains stuck in a cycle of low growth and falling prices (deflation). As China tries to export its way out of trouble, it could flood other developing nations with cheap goods, hurting local industries in places like Turkey or Vietnam.
Furthermore, the strength of the U.S. dollar remains the “X-factor.” If the Federal Reserve decides to keep interest rates higher than expected, the dollar could bounce back, potentially making emerging market investments more expensive and less attractive.
Even with those risks, the momentum seems unstoppable. In the week leading up to mid-December, cash poured into emerging-debt funds at the fastest rate since the summer.
The consensus among Wall Street elite is that most global portfolios are still “underweight” in emerging markets—meaning most people haven’t bought in yet. This suggests there is still plenty of room for prices to rise as more investors jump on the bandwagon.
“This uncertainty provides investors with a window of opportunity,” Suzuki explains. “Once everyone believes in it, it might be too late.”
As we move into 2026, the message from the markets is clear: the era of “American Unexceptionalism” has arrived, and the next chapter of global growth is being written in the developing world.
