Emerging markets’ strength comes from within

Through Robeco’s more than 30 years of investing in EM, one constant has been the inexorable economic advance across the EM landscape. Nevertheless, EM equities continue to be discussed through the language of the past: as high-beta amplifiers of global cycles, commodity-driven beneficiaries of China’s growth, or diversifiers in a developed-market (DM)-centric portfolio. Reality suggests that framing is no longer appropriate.

Economic development in EM has been a process unfolding over decades. Looking beyond the dry macroeconomic data, the change in the key sectors that drive EM economies tells a more visceral story. In 2008 the biggest MSCI EM index weights were in primary extractive industries like mining and energy (Figure 1).

By 2025 the index had transformed with technology the largest sector at 28% of market capitalization. While EM investment still gives you significant exposure to materials (7%) and energy (4%) the economic balance now reflects leadership in the most innovative sectors.

To complement innovation leadership, the impact of growing domestic consumption and wealth in EM are already visible in growth data, and we believe the next decade will see the related multiplier effects intensify, becoming another structural tailwind for EM assets. The foundation stones for this have already been laid with EM financial systems increasingly becoming sophisticated and institutionally stable. Local savings pools – pensions, sovereign wealth funds, and insurers – are increasingly the dominant source of capital in major EM equity markets.