It was a banner year for emerging markets in 2025, but according to Chris Tennant, co-manager of the Fidelity Emerging Markets trust (FEML), the market still has plenty of room to run.
Despite the MSCI Emerging Markets index surging by 24.4% in 2025, valuations have yet to reflect this, according to the Fidelity manager.
“We’re still trading at around a 45% discount to developed markets, and I think for various reasons that’s unjustified,” Tennant said.
See also: EM outlook: Emerging markets at an ‘inflection point’ after strong 2025
For instance, the fiscal backdrop in emerging markets has improved markedly and now even seems superior to that in developed markets, Tennant said. The average developed market has an average government gross debt level of 110% of GDP, while emerging markets are closer to 70%, according to Fidelity research.
He said this was a consequence of the pandemic, when developed markets implemented stimulus packages while emerging markets tightened the fiscal purse strings. As a result, developed markets have higher debt levels, while EMs have stronger balance sheets and greater fiscal freedom, the manager continued.
The dollar has also experienced a reversal, sliding from its prior strength as the US administration embarked on an aggressive fiscal policy programme.
As a result, the backdrop in emerging markets is now far better than it used to be, he argued. Despite this, there is still a “huge bifurcation in valuations”, and markets such as South Africa have gotten even cheaper.
See also: Fidelity’s Tennant: Understanding your emotional biases is incredibly important
The trust currently has an 8.8% relative overweight to South Africa, with mid-cap precious metals miners, such as Aura Minerals and Pan African Resources, represented in the top 10 holdings.
These metals had a “goldilocks” year in 2025, with the gold price peaking at more than $4,800 per ounce at the end of 2025, driven by supportive purchasing from central banks, but the Fidelity team believed it could have further to run.
Salman Ahmed, global head of macro and strategic asset allocation, said: “Central bank buying has slowed a bit, but we do think it will continue.” He continued: “We are moving towards a more low-trust world, where countries don’t trust each other, and the financial system has been weaponised in the past.
“So when there are these concerns about risk, that means demand for gold will continue,” Ahmed concluded.
Meanwhile, demand for copper is rising due to increased electrification, data centres and electric vehicles. However, there is a 4-million-ton gap between current supply and demand in 2035, which should be a tailwind for these stocks, he said
With material stocks accounting for roughly 42% of the MSCI South Africa index, this positive backdrop for precious metals is a huge driver, not just for the miners, but also for the consumer stocks.”
The team also has a 10% relative overweight to Brazil, where valuations are “extremely depressed”, with a cyclically adjusted price-to-earnings ratio (CAPE) of just 12.8x.
While the region has faced some headwinds, including concerns over the current government, this did not stop the MSCI Brazil from rising 39.4% last year.
It has continued to rally so far in 2026 and is up 21.7%, as of 27 February, but could go much further depending on the election results at the end of the year.
See also: Why now for emerging markets?
“I think if you have that change in government, Brazil will be unquestionably the best performing equity market in the world in 2026,” Tennant said.
That said, he also warned that some parts of the market looked “deeply challenged.”
For example, he pointed to consumption in areas such as China and Korea, where demographics were horrible, and birth rates were “very depressed”, which is weighing on the consumer stocks.
However, there were bright spots in these regions, such as in Chinese industrial companies. “Here, growing levels of R&D spend, combined with a large, skilled talent pool – with China having the world’s highest proportion of tertiary graduates in a STEM field- are driving innovation and market share gains,” he said.
For example, CATL is a battery maker with roughly 45% global share, which means it will put “the majority of Korean battery makers out of business”, according to Tennant.
This approach of favouring the cheapest markets seems to be paying off for the team so far this year, with a 21.2% total return, making it the best-performing strategy in the IT Global Emerging Markets sector year to date.
This builds on a strong 2025, when the trust surged 57.4%, more than double the MSCI Emerging Markets index.
See also: Why 2025’s top income fund has gone big on emerging markets
