Emerging markets - local presence, deeper insight

Emerging markets are economies undergoing structural transformation — typically growing faster than developed markets and playing a larger role in global supply chains, consumption and innovation. Today’s EM universe spans 24 countries across Asia, Latin America, EMEA and the Middle East. These markets now account for a rising share of global GDP growth and are home to leading companies in sectors such as semiconductors, digital services and advanced manufacturing.

According to long-term IMF forecasts, emerging economies are expected to grow at materially faster rates than developed markets, supported by demographics, rising incomes and secular trends such as digital adoption and premiumization. At the same time, many EM equities continue to trade at attractive valuations relative to developed peers. For diversified portfolios, this combination of higher structural growth and compelling entry points can open opportunities over a long-term horizon.

Emerging markets come with distinct risks: policy shifts, currency volatility, geopolitical events and liquidity differences can all contribute to uncertainty. But risks are far from uniform. Many EM economies have strengthened their fiscal positions, expanded FX reserves and improved institutional frameworks over the past decade, making the overall landscape more resilient than historic perceptions suggest.

The choice between active and passive EM exposure depends on an investor’s objectives, cost preferences and approach to navigating these dynamics.

EM equities have often shown lower correlation to developed markets at key points in the cycle. Their return drivers — domestic consumption, technology adoption, rising middle-class demand and deepening regional trade — differ meaningfully from those underpinning the UK, US or Europe. This can broaden sources of return and reduce reliance on any single market or macro cycle.

Today’s EM opportunity extends well beyond commodities. “New economy” sectors — semiconductors, digital platforms, online/offline consumer franchises, healthcare innovators and technology-enabled financial services — now account for more than half of the EM index. These sectors reflect the transition toward higher-quality, innovation-led growth.

China remains influential, but the EM universe is far more diverse than a single market. Countries such as India, Taiwan, South Korea, Brazil, Mexico and a growing cohort of frontier markets contribute substantially to earnings, innovation and long-term growth. This makes today’s EM landscape more balanced and multi-polar than many investors assume.

Currency movements can amplify or reduce returns in the short term. FX dynamics in EM are increasingly influenced by domestic fundamentals, interest-rate cycles and evolving global trade patterns. Over the long term, however, company earnings, governance and structural growth drivers tend to play a more significant role in return outcomes. Some investors view selective currency exposure as an additional source of diversification.

Both approaches can work — they simply play different roles.

• Active EM strategies may help investors navigate market dispersion, governance differences and idiosyncratic risks, especially where local insight or company research is valuable.
• Passive EM strategies, including ETFs, can provide low-cost, broad-market access and are useful for strategic asset allocation or as a complement within multi-manager portfolios.

Many advisors blend the two: using passive vehicles for core exposure and active strategies for targeted opportunities.

Franklin Templeton offers one of the industry’s most comprehensive EM platforms — spanning both active and passive solutions. Our 70+ investment professionals across 14 countries meet 2,000+ companies a year, drawing on decades of on-the-ground experience and proprietary research infrastructure to understand local drivers and long-term trends.

For investors preferring low-cost implementation, our EM ETFs provide broad, systematic access across global, regional or single-country exposures.

Our EM range includes:

• Global EM strategies
• Regional EM strategies
• Single-country strategies
• EM small-cap and frontier allocations
• Low-cost EM ETFs, including regional and single-country exposures
• Blended and customised EM solutions for institutions and allocators

This breadth allows investors to target specific outcomes or combine approaches based on cost, conviction, risk tolerance and implementation style.

EM strategies may suit investors seeking long-term capital growth, broader geographic diversification, or exposure to innovation-rich sectors. They can also complement existing allocations — whether active or passive — within a multi-manager or model-portfolio framework.