Emerging markets returned 33.6% in 2025, and most British portfolios hold almost none. Here is the growth story, and the awkward small print underneath it.
Emerging Markets: Where the Growth Actually Is
In 2025, the MSCI Emerging Markets Index returned 33.6 per cent. The S&P 500, which absorbs roughly all of the oxygen in any financial conversation, returned 17.9 per cent. The MSCI World managed 21.6 per cent.
So the part of the world in Britain no one talks about nearly doubled the part everybody talks about constantly. And the average British portfolio holds almost none of it. We are, collectively, very well informed about a smaller number.
What Emerging Markets Actually Means
The phrase is unhelpful before you even start. It sounds like a forecast, something poised to happen shortly, when in fact it is a defined index containing several economies that emerged some time ago and are now waiting politely for the label to catch up.
Formally, it describes countries transitioning from lower-income, often pre-industrial conditions towards modern industrial economies and higher living standards. Practically, it is a list, and the list is the whole story.
The MSCI Emerging Markets Index is dominated by China, at around 24 per cent, Taiwan at 22 per cent, South Korea at 18 per cent, India at 13 per cent and Brazil at 5 per cent.
Now look at that again, because it contains the single most useful sentence in this article. Taiwan and South Korea together account for roughly 40 per cent of the index, and both are stacked with technology and semiconductors. Which means the fund you bought for diversification is, to a considerable degree, the same artificial intelligence bet you already own, wearing a hat and a false moustache.
That is not a reason to avoid it. It is a reason to know what is in the basket before you congratulate yourself on how varied your shopping is.
The Growth Argument
The underlying case is genuinely strong, and pleasingly boring. It rests on arithmetic rather than enthusiasm.
The International Monetary Fund projects emerging markets to grow around 3.9 per cent in 2026, and 1.4 per cent for advanced economies. That is not a one-off. Emerging economies are expected to deliver close to two-thirds of global growth, expanding at nearly three times the pace of the developed world.
India makes the point neatly. Its growth is expected to slow from above 7 per cent in 2025 to around 6.4 per cent in 2026; this is a disappointing year in India and would be treated as a national miracle almost anywhere in Europe. Vietnam, Malaysia, Indonesia and the Philippines have meanwhile been quietly collecting the supply chains that moved.
Underneath sit demographics, urbanisation and rising domestic consumption. More people entering the workforce, more people moving to cities, more people buying things they could not previously afford. Slow, structural, unglamorous forces. The best kind.
Now the Awkward Small Print
Faster growth does not reliably become better returns, and anyone who tells you otherwise is selling something.
Over the past twenty years, emerging markets beat developed markets in nine years and lost in eleven. That is a coin toss that charges you extra for the drama. The 33.6 per cent from 2025 is real, but it arrived after a long stretch in which the same index tested the patience of everyone who owned it.
The risks are also different in kind. Currency exposure means a company can have a wonderful year locally and still hand you a loss by the time it reaches your account, because the exchange rate quietly ate it. Political and policy risk runs higher. Capital leaves quickly when global conditions tighten, and India endured sustained foreign portfolio outflows through much of 2026 while its growth story remained entirely intact. Fundamentals and flows are not the same animal.
There is one more pattern worth knowing, and it is slightly deflating. Emerging market performance heavily leans on US interest rates. Cuts loosen global conditions and push money in. Rises tighten them and pull it back out. You may think you are investing in Jakarta. You are also, whether you fancied it or not, taking a position on the Federal Reserve.
How This Fits a Rounded Portfolio
I am not going to tell you what proportion to hold, because that depends on your circumstances and this is not financial advice.
What I will say is that holding none is also a decision. It is simply a decision nobody remembers making, arrived at by accepting whatever the default fund contained and never opening the lid. Most British investors end up heavily weighted towards the US and the UK for exactly that reason, which is less a strategy than a habit with good manners.
If you do look, the practical route for most people is a low-cost index fund or exchange-traded fund tracking a broad emerging-markets index, held inside a tax-efficient wrapper. That buys the whole basket and spares you the opinions about Brazilian mining. Lazard publishes a detailed emerging markets outlook if you want the same argument in a suit.
The broader point is one I keep coming back to. The world is considerably larger than the slice your default fund happens to cover, and the growth is rarely where the noise is. Noticing that costs nothing, which is fortunate, because it is the only part of investing that does: Finance Was Built to Sound Harder Than It Is.
The Jacqueline Brand — knowledge builds confidence, confidence builds wealth. This is editorial commentary for inspiration, not financial or professional advice. Always do your own research. The Collection
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