After so many false starts, can emerging market equities finally provide investors with the opportunities and diversification they need in an environment of global uncertainty? Malcolm Dorson (Global X) and Jonathan Ramsay (Trellia Wealth Partners) examine the growth of emerging markets.
In recent times, emerging markets has been a tough market to invest in, having only outperformed the S&P 500 in two of the past 15 years. This has primarily been due to massive growth in U.S. mega-cap stocks, a strong U.S. dollar, and structural issues in key emerging economies, most notably China.
Not surprisingly, this has resulted in considerable negative sentiment in emerging market equities, which has led to a significant home bias for investors in developed markets, like Australia. But in the current market cycle, with developed market equities (particularly U.S. stocks) trading at historically high valuations and concentrated into a handful of names (Magnificent 7), along with a weakened U.S dollar, a dovish Federal Reserve, and renewed economic stability in China, the story around emerging markets is beginning to look attractive again.
This attraction for emerging markets rests on their potential for higher economic growth, driven by a range of factors, including favourable demographics, rising productivity, a rapidly growing middle class, and increasing domestic consumption. And against this backdrop, emerging markets also offer investors significant diversification benefits, low correlation with developed markets, attractive valuations, strengthening fundamentals, and substantial technological advancements.
By Jayson Forrest
Jonathan Ramsay
Partner & Portfolio Manager
Trellia Wealth Partners.
Malcolm Dorson
Snr Port Mngr Emerging Market Equities- GlobalX
Continued.....
“It’s a compelling argument for emerging markets,” says Malcolm Dorson — Head of the Active Investment Team and Senior Portfolio Manager for Emerging Market Equities at Global X. Speaking on the topic ‘Structural opportunities in emerging markets — India’ at the 2026 IMAP Portfolio Management Conference in Sydney, Malcolm believes emerging markets look appealing, particularly with the sector trading at a 45 per cent ‘multiple discount’ to the S&P 500.
He is particularly bullish on India, which has a market capitalisation exceeding US$5 trillion. India is also the fifth largest stock market globally, offering investors unique opportunities to tap into this emerging market.
In making the case for India, Malcolm points to a number of key factors as potential growth catalysts. These include strong secular growth based on attractive demographics, a market-friendly and democratically elected Government, structural reforms, capital expenditure to lift productivity, supply chain diversification, prudent monetary policy, and a rapidly growing middle class.
India is the best global demographic story. It has a young population and it’s expected to add about 25 per cent of the world’s working-age population. At over 1.4 billion people, India is also massive, having surpassed China’s population
A powerful demographic dividend
India has the world’s largest general and youth populations, with nearly 60 per cent of people below the age of 35 years. India also has a youth literacy rate at approximately 97 per cent, and it is expected to have the second highest university graduates and second largest group of STEM (science, technology, engineering, mathematics) graduates in the world.
“India is the best global demographic story. It has a young population and it’s expected to add about 25 per cent of the world’s working-age population. At over 1.4 billion people, India is also massive, having surpassed China’s population,” says Malcolm. “And India has increasing domestic spending capacity, with the Gen Z population of 377 million expected to make up as much as 46 per cent of Indian consumer spending — the equivalent of US$1.8 trillion dollars by 2035.”
We believe emerging markets will account for nearly two-thirds of global growth in 2026, growing about 3x faster than developed markets. The MSCI Emerging Markets Index forward earnings per share (EPS) growth of 13.9 per cent compound annual growth rate rivals even the Nasdaq (at 14.9 per cent), but at half the valuation (11.3x vs 21.9x forward price earnings)
Key structural reforms
Another factor that appeals to Malcolm are the number of policy reforms India has made to lift overall productivity. These include:
- the United Payments Interface (UPI) — a national digital payment system that facilitates digital transactions;
- the Aadhaar program — a unique digital customer identification initiative that has documented the identities of more than 94 per cent of India’s population. The program effectively provides Indians with direct access to Government subsidies, the ability to access affordable formal financial services for the first time, and has enabled Indians to prove their identities when opening bank accounts, or when voting, accessing free education, or for employment when identification is needed.
- the Goods and Services Tax (GST) — has simplified cross-state shipping, allowing e-commerce competition to flourish; and
- the ‘Make in India’ program — aimed at transforming India into a global manufacturing hub, by fostering innovation, enhancing skill development, protecting intellectual property, and building best-in-class manufacturing infrastructure. The program also has a focus on streamlining business and attracting foreign investment. This program is also aimed at curtailing India’s trade deficit with China.
“India has also reduced corporate tax rates, introduced production-linked incentive programs to improve the ease of doing business, and is spending on infrastructure, whilst doing so as it consolidates its fiscal deficit,” says Malcolm. “It’s able to do this because some of these structural reforms have resulted in efficiencies around tax collection. For example, with the digital economy, India has removed 80 per cent of paper currency from the economy, which makes it easier for the Government to track people’s spending and tax them accordingly.”
Malcolm is confident that these key reforms and programs, along with corporate tax cuts, reducing bureaucracy, and cutting red tape are all helping with the ‘India story’ and setting a very positive and responsible backdrop for future growth.
There are genuine investment opportunities in India around technology. India accounts for 49 per cent of the real-time transactions market, and it has the third largest startup ecosystem in the world, with more than 123,000 startups and a record 127 ‘unicorns’ worth more than a combined US$390 billion. Furthermore, with over 500 million consumers, India is expected to have the second largest cohort of online shoppers by 2030
Global supply chain diversification
According to Malcolm, India is poised to benefit from nearshoring trends, as the world looks to decouple from China and companies move to diversify their supply chain to reduce political risks. He also adds the Indian Government has put in place an investor-friendly Foreign Direct Investment (FDI) policy, under which most sectors are open for 100 per cent FDI through the ‘automatic route’ (no prior Government approval). As a result, FDI inflows have seen a steady rise — from US$36.05 billion (FY 2013-14) to US$80.61 billion (FY 2024-25).
“India has also been discussing trade deals with several countries and recently signed Free Trade Agreements with the U.K., New Zealand, Oman and the European Union,” says Malcolm. “After nearly 20 years of discussions with the European Union, India will see a cut in tariffs on about 99.5 per cent of Indian exports. Furthermore, we are optimistic on the recent trade deal with the United States.”
If an investor wants growth in their portfolio, much of that growth is probably going to have to come from emerging markets
A digital revolution
The digital story in India is also impressive. India launched its ‘Digital India Program’ in 2015, which has driven ‘new economy’ sectors from about 5 per cent to 15 per cent of GDP.
“There are genuine investment opportunities in India around technology. India accounts for 49 per cent of the real-time transactions market, and it has the third largest startup ecosystem in the world, with more than 123,000 startups and a record 127 ‘unicorns’ (startups with a value of over US$1 billion) worth more than a combined US$390 billion,” says Malcolm.
“Furthermore, with over 500 million consumers, India is expected to have the second largest cohort of online shoppers by 2030. We expect more companies to continue coming to market across various industries — from fast-moving consumer goods to rural micro-finance.”
Low correlation to the U.S. and low beta to emerging markets
India’s beta to emerging markets has fallen to about 0.5 from nearly 0.8 in 2018-2020, due to improved macro stability and reduction in dependence on global capital market flows to fund its current account deficit. “India is not your typical cyclical emerging market country. Its volatility has been extremely low over the past 7-10 years,” says Malcolm.
According to Malcolm, there’s a lot to like about India. With a rapidly growing middle class, India has the potential to be the world’s third largest economy by the end of this decade, with its GDP expected to surpass US$6 trillion by 2030. This could result in India’s expected weight in the MSCI Emerging Markets Index to climb above 25 per cent (vs its current weight of about 15.3 per cent) before the end of this decade on market capitalisation and GDP growth trends.
Not so emerging anymore
Jonathan Ramsay — Partner and Portfolio Manager at Trellia Wealth Partners — shares Malcolm’s enthusiasm for India, as well as emerging markets generally. He also believes the case for emerging markets is compelling, citing emerging market economies now representing about 50 per cent of world GDP Purchasing Power Parity (PPP*) and about 40 per cent nominal — up from 25 per cent in the year 2000.
* GDP PPP measures a country's total economic output by adjusting for the cost of living and inflation rates, rather than using market exchange rates. It translates different currencies into an ‘international dollar’ to compare actual purchasing power and living standards between countries.
In a presentation on ‘The unlikely haven — Why emerging markets may be the rational response to irrational prices’ at the 2026 IMAP Portfolio Management Conference in Melbourne, Jonathan says emerging markets offer a compelling growth-to-valuation trade-off compared to the Nasdaq. Backed by 2026 market projections and consensus forecasts, Jonathan points to data that supports a high-growth outlook for emerging markets at significantly lower multiples than U.S. tech benchmarks.
“We believe emerging markets will account for nearly two-thirds of global growth in 2026, growing about 3x faster than developed markets,” says Jonathan. “The MSCI Emerging Markets Index forward earnings per share (EPS) growth of 13.9 per cent compound annual growth rate rivals even the Nasdaq (at 14.9 per cent), but at half the valuation (11.3x vs 21.9x forward price earnings).”
This is supported by market data that shows emerging market equities offering 13-25 per cent forward EPS growth at 11-12x earnings.
Portfolio growth
According to Jonathan, along with the strong growth of emerging markets — like India, Taiwan, Korea, and China — domestically driven emerging market economies are also structurally less correlated with the U.S. cycle, which means emerging markets offer genuine diversification benefits and reduced risk within a portfolio.
“If an investor wants growth in their portfolio, much of that growth is probably going to have to come from emerging markets,” he says.
To support this assertion, Jonathan points to IMF World Economic Outlook estimates that show emerging market GDP growth for 2025 will be 65 per cent, compared to 35 per cent for developed markets. This rises in 2030 to 68 per cent, compared to developed markets dropping to 32 per cent. When compared to the beginning of the millennium, when GDP growth in developed markets was 63 per cent and emerging markets was 37 per cent, it’s clear that global GDP growth is occurring faster in emerging markets.
“So, for investors who want growth, maybe emerging markets are something they need to think about, if they want to reach their CPI+ objectives,” he says. “That’s because we no longer live in a world where the U.S. catches a cold and emerging markets get pneumonia. Emerging markets have become less volatile, and are perhaps more of a backwater than a lightening rod for risk.”
Jonathan adds the market is more confident overall about the growth coming from emerging markets and the resilience of it, compared to the concentrated growth happening in U.S. equities (Magnificent 7 and AI). Instead, emerging market equities enable investors to pay a lower multiple for higher expected growth on their investments.
True diversification benefits
For countries like Taiwan and India, Jonathan agrees emerging markets can provide true diversification in a portfolio, particularly as the world deglobalises. He says while historically, emerging market equities were high beta proxies for developed markets — rising and falling in lockstep with the S&P 500, offering investors with little ‘true’ diversification — this is no longer the case.
Today, emerging market economies are increasingly driven by domestic consumption, regional trade alliances, and distinct monetary policy cycles. Jonathan believes deglobalisation and supply-chain reshoring are creating structurally lower correlations between emerging markets and developed markets — and between individual emerging market countries themselves.
“Countries like India, Vietnam, Indonesia, and Brazil all have unique growth drivers, such as a growing middle class and structural reforms. This means for portfolios concentrated in U.S. and developed market equities, emerging markets now offer investors genuine portfolio-level risk reduction, alongside superior return prospects. It’s an asset class investors should reconsider.”
About
Malcolm Dorson is Head of the Active Investment Team and Senior Portfolio Manager for Emerging Market Equities at Global X, and
Jonathan Ramsay is Partner and Portfolio Manager at Trellia Wealth Partners.
They spoke on the topics ‘Structural opportunities in emerging markets — India’ and ‘ The unlikely haven — Why emerging markets may be the rational response to irrational prices’ at the 2026 IMAP Portfolio Management Conference in Sydney and Melbourne.