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Executive Summary

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Emerging markets have, for a long time, offered investors exposure to fast-evolving economies, expanding middle classes, and vast resources. While they often carry higher volatility and risk relative to developed markets, they can also provide long-term return potential and portfolio diversification benefits.

We believe the current environment—which, in our view, is the most supportive of emerging markets in more than 15 years—offers a strong foundation for meaningful growth. We have seen several structural and cyclical factors that suggest the asset class can continue to deliver standout returns going forward, potentially offering attractive valuations alongside robust return on equity, free cash flow, and dividend yields.

Here’s a closer look at the key reasons to be optimistic about the future of the asset class:

EPS expectations for the MSCI Emerging Markets Index are currently higher for 2026 than for developed market equities,1 underpinned by a combination of accelerated economic expansion in these regions, nascent monetary easing, and favorable currency dynamics (Exhibit 1). 

EXHIBIT 1

Earnings Growth: Opportunities Amid Expectations

As of 2 October 2025.

Source: J.P. Morgan, MSCI

Estimates indicate higher expected growth spanning multiple countries and sectors. The drivers of this asset class are diverse and not tied to a single story but rather several uncorrelated themes such as demographics, technology and innovation, and deglobalization. In contrast, in the United States, more than 70% of the S&P 500 Index earnings growth from 2022 to 2025 (estimated) has come from the broadly defined tech sector.2

Lower US interest rates have the potential to allow central banks in emerging markets to cut rates and accelerate growth without weakening their local currencies.

A weaker US dollar has tended to support emerging markets equities by boosting capital flows, earnings growth and price returns, and macroeconomic stability—particularly benefiting unhedged US-based investors with the potential to lift total returns.

Emerging markets have seen more than a $26 billion influx across the asset class in October 2025 alone (equities at $12.9 billion, debt at $14.0 billion), according to the Institute of International Finance,3 providing exposure to the leading businesses of today as well as new economy sectors such as digital commerce and media. 

We believe it is less expensive to tap into AI thematic investing outside of the United States—we believe DeepSeek indicated a shift in global AI leadership; the MSCI Emerging Markets Information Technology Index trades at 17x forward earnings while the S&P 500 Information Technology Index trades at more than 30x.4

We expect a shift of capital across emerging markets over the next decade, driven, in part, by changes in global supply chains. As companies diversify away from heavy reliance on China for manufacturing, nations like Vietnam have benefited from shifts across the electronics and textile sectors. Indonesia and Malaysia have also benefited from supply chain diversification, particularly in commodities, battery materials, and electronics assembly. Mexico continues to benefit from nearshoring trends, while we believe India is positioning itself as an alternative manufacturing hub across electronics, pharmaceuticals, and automotive components.

We believe investors may see stronger sovereign balance sheets in emerging markets versus many developed economies. Emerging markets often have lower debt, stronger reserves, and more conservative fiscal policies than many developed nations have, making them more resilient and attractive to investors.

More orthodox monetary policies across emerging markets countries have contributed to currency stability. The Central Bank of Brazil, for example, has been a thoughtful steward, navigating the global pandemic by hiking rates early in 2021 (from 2% to 13.75%), easing as inflation fell, and staying steady in the face of political pressures. Going forward, we believe monetary policy across emerging markets is likely to be more introspective, more focused on domestic growth and inflation drivers versus policy shifts from the US Federal Reserve. 

A valuation gap between developed and emerging markets equities has increased significantly, with the MSCI Emerging Markets Index trading at more than a 30% discount to the MSCI World Index.5 And relative to the United States, we believe the near-40% discount for the MSCI Emerging Markets Index versus the S&P 500 Index presents an attractive opportunity for investors (Exhibit 2). 

EXHIBIT 2

EM Valuation Discounts: Wide Relative to Long-Term Averages

As of 30 September 2025.

Source: FactSet

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Emerging Markets: Back in the Spotlight

We believe emerging markets is entering one of their most promising periods in more than a decade, fueled by strong fundamentals and supportive global forces. Structural trends—including supply chain shifts, technological innovation, and demographic growth—are converging with a softer US dollar, easing monetary conditions, and renewed capital inflows likely to amplify their growing potential. Add to this notably attractive valuations, and we believe the asset class presents a compelling long-term opportunity for investors.
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Notes
1 MSCI World Index. Source: Bloomberg, J.P. Morgan; As of 31 October 2025
2 Source: Lazard, MSCI, S&P; As of 28 November 2025
3 Source: Institute of International Finance; IIF Capital Flows Tracker: November 2025; As of 11 November 2025
4 Source: MSCI, S&P; As of 31 October 2025
5 Source: Bloomberg, J.P. Morgan; As of 31 October 2025

 

Important Information
Published on 23 January 2026.

The performance quoted represents past performance. Past performance is not a reliable indicator of future results.

Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Securities in certain non-domestic countries may be less liquid, more volatile, and less subject to governmental supervision than in one’s home market. The values of these securities may be affected by changes in currency rates, application of a country’s specific tax laws, changes in government administration, and economic and monetary policy.

Allocations and security selection are subject to change.

No risk management technique or process can guarantee return or eliminate risk in any market environment.

The S&P 500 Index is a market capitalization-weighted index of 500 companies in leading industries of the US economy.

The MSCI Emerging Markets Index is a free-float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The MSCI Emerging Markets Index consists of emerging markets country indices, including: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey, and United Arab Emirates. 

The MSCI EAFE Index (Europe, Australasia, Far East) is a free-float-adjusted market capitalization index that is designed to measure developed market equity performance, consisting of developed market country indices excluding the United States and Canada.

The MSCI World Index is a free-float-adjusted market capitalization index that is designed to measure global developed market equity performance comprised of developed market country indices.

The MSCI USA Index is designed to measure the performance of the large and mid-cap segments of the US market.

The index is unmanaged and has no fees. One cannot invest directly in an index.

Certain information included herein is derived by Lazard in part from an MSCI index or indices (the “Index Data”). However, MSCI has not reviewed this product or report, and does not endorse or express any opinion regarding this product or report or any analysis or other information contained herein or the author or source of any such information or analysis. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any Index Data or data derived therefrom.

Certain information contained herein constitutes “forward-looking statements” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “target,” “intent,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events may differ materially from those reflected or contemplated in such forward-looking statements.

This document reflects the views of Lazard Asset Management LLC, Lazard Frères Gestion or its affiliates (“Lazard”) based upon information believed to be reliable as of the publication date. There is no guarantee that any forecast or opinion will be realized. This document is provided by Lazard for informational purposes only. Nothing herein constitutes investment advice or a recommendation relating to any security, commodity, derivative, investment management service, or investment product. Investments in securities, derivatives, and commodities involve risk, will fluctuate in price, and may result in losses. Certain assets held in Lazard’s investment portfolios, in particular alternative investment portfolios, can involve high degrees of risk and volatility when compared to other assets. Similarly, certain assets held in Lazard’s investment portfolios may trade in less liquid or efficient markets, which can affect investment performance. Past performance does not guarantee future results. The views expressed herein are subject to change, and may differ from the views of other Lazard investment professionals.

This document is intended only for persons residing in jurisdictions where its distribution or availability is consistent with local laws and Lazard’s local regulatory authorizations. Please visit www.lazardassetmanagement.com/global-disclosure for the specific Lazard entities that have issued this document and the scope of their authorized activities.