Emerging Markets Returns Easing in 2025: State Street

Don’t expect the strong returns notched by emerging markets this year to be repeated in 2025, says State Street Global Advisors.

The MSCI Emerging Markets Investable Markets Index is up 8.4% year-to-date, and State Street’s benchmark $9.9 billion SPDR Portfolio Emerging Markets ETF (SPEM) is up 12.3% year-to-date, but the strong yearly performance hides recent weakness.

Matt Bartolini, head of Americas ETF research for SSGA, says the trends of the last three months are likely more indicative of trends for 2025, particularly the weakness seen in November. SPEM is down 4.2% on a one-month basis and up 1.5% on a three-month basis.  

Weaker Emerging Markets Returns Loom in 2025

President-elect Donald Trump’s vocal support of protectionism and advocacy for higher tariffs, including talks of a blanket 20% tariff on all countries and a 60% tariff on Chinese goods, could lead to a stronger dollar.  “That would obviously be a headwind for emerging markets overall,” Bartolini said.

SSGA recently launched an ex-China ETF, SPDR S&P Emerging Markets ex-China ETF (XCNY), giving it a total of eight EM ETFs, with $12 billion in assets under management. It also joins a trend of fund issuers offering emerging market ETFs that eliminate exposure to the Asian nation. Bartolini says managing China risk in emerging market portfolios is gaining traction when financial advisors talk to clients. Even advisors and clients who still want emerging market exposure from a geographic and asset diversification standpoint, may also want to manage overall China risk, including the concentration the country has in most indexes, he said.

Macroeconomic and policy decisions don’t always play out as investors initially expect. During Trump’s last term, renewable energy grew, so it can be hard to make simple bets.

Bartolini concurs to a point. Macro policy can impact investor sentiment, but ultimately, what wins out is profitability. “There's a reason why profitable stocks have historically beaten unprofitable stocks, and that is always going to be true over the long term,” he noted.

But today’s environment may be different, and he is cautious, as macroeconomic policy proclamations have been unorthodox and disrupting conventional norms, so the ramifications of these policies are also uncertain.  

“This isn't a this isn't a political statement. It's more of a fact,” Bartolini added.  

It also comes at a time when U.S. and global monetary policy evolves. The U.S. economy is quite strong, but inflation is still not back to the Federal Reserve’s target. On a global scale, macroeconomic and monetary policy framework is also uncertain, leading to “somewhat of a risk there could be a policy mistake at some point,” Bartolini said.