A very strong EM market environment in 2025-26. The MSCI Emerging Markets index returned 60% in dollar terms since the beginning of last year, with some countries up significantly more. Emerging currencies rebounded smartly in the weak-dollar and strong fund flows environment; local interest rates continued to trend down and sovereign dollar debt spreads tightened dramatically further.

And now AI and oil. The big news this year are (i) the explosion of AI-related investment demand for chips and equipment and (ii) the Iran-related surge in fuel prices, with further implications for Asia and EM oil exporters.

But not a "game-changer" in our view. Investors are excited about a new secular EM boom era as US exceptionalism fades, but strong market performance over the past 18 months has been driven more by "the usual suspects", i.e., the combination of strong exports especially to the US and a weakening dollar. Meanwhile, China and other key BRICS economies are barely expanding. If the AI boom and broader US growth falter, so will EM assets.

Remain positioned for growth for now. Our own portfolio is overweight equities and local FX/fixed income and underweight dollar debt, but we're not "all in" on the EM theme as both valuation and growth risks loom in our minds.