Emerging Markets Gain Favor Among Major Asset Managers

Emerging markets (EM) are emerging as a prominent investment opportunity in 2026, according to analysts from Citigroup Inc. The world's largest asset managers, collectively managing over $20 trillion in assets, are increasingly investing in EM stocks, local currency bonds, and credit. This trend is driven by expectations of robust global economic growth and a weaker U.S. dollar, which analysts believe will benefit these markets. The MSCI Emerging Markets stock index has reached a record high, reflecting this growing confidence, while trading volumes in related exchange-traded funds have also surged.

Bloomberg

Citigroup's analysis indicates that fund managers are expanding their long positions in equities across various regions, including Asia, Latin America, and parts of Europe, the Middle East, and Africa. In contrast, there is a notable shift towards short positions in U.S. Treasuries and core European sovereign debt. The preference for EM bonds is particularly pronounced, with these assets being the top duration call among investors. Additionally, EM debt is favored in credit markets, while U.S. investment-grade bonds are seeing a significant underweight.

Bloomberg

Despite recent market volatility linked to concerns over artificial intelligence's potential economic impact, EM assets have maintained their upward trajectory. The MSCI EM Index saw an increase of up to 0.7%, buoyed by a rise in Asian technology shares and the ongoing depreciation of the dollar. Furthermore, a Bloomberg gauge of EM local currency government bonds has yielded a return of 2.2% in 2026, following an impressive annual return of 8.5% in the previous year, marking the best performance since 2017. Sovereign dollar bonds have also shown positive movement, with a 1.7% increase this year after a 13% rise last year.

Bloomberg

The growing interest in emerging markets reflects a broader sentiment shift away from developed markets, where policy uncertainty and fiscal concerns have dampened investor confidence. As bond yields in the U.S., Japan, and Germany surge, the attractiveness of EM assets is further enhanced. Additionally, gold has remained a favored investment, with fund managers increasing their positions in precious metals amid strong central bank demand and a negative outlook for the dollar.

Bloomberg

Citigroup emphasized that there is a consensus among fund managers regarding the strategy of going long on gold while shorting the U.S. dollar. This sentiment underscores a significant shift in investment strategies as market conditions evolve.

Bloomberg

While the optimism surrounding emerging markets is palpable, some analysts caution against potential risks, including geopolitical tensions and economic instability in certain regions. Critics argue that the rapid growth in EM investments may overlook underlying vulnerabilities that could impact long-term performance.

Bloomberg

“There is no disagreement in long gold and short USD views,” — Citigroup Inc. Analyst

Bloomberg

In summary, the current landscape indicates a strong preference for emerging markets among major asset managers, driven by favorable economic conditions and a strategic pivot away from developed markets.

Bloomberg