Throughout 2025, financial advisors leaned into emerging markets. With the dollar weakening and large cap U.S. stocks seeming to be at the peak of their valuations, emerging markets equities looked attractive, both as a diversifier and a smart beta play. Not only was the sector more reasonably priced, but many emerging market economies have also been in expansion mode, with strengthening consumer spending and moderating inflation. A report published earlier this year by the Chartered Alternative Investment Analyst Association found that 62.1% of CAIA members view emerging markets as a source of growth and diversification that cannot be replicated by investment in developed markets. Another recent report by Morningstar notes that adding modest amounts of international equities to 60/40 portfolios can offer investors the greatest diversification benefit with the least downside.
The war in Iran has complicated that picture. Emerging markets still look poised for growth, according to Derrick Irwin, a senior portfolio manager at Allspring Global Investments. But unless the Strait of Hormuz opens to commercial shipping soon, the firm’s projections of interest rate cuts by central banks across many emerging markets may not materialize. Wouldn’t that hamper those countries’ equity prospects?
Despite the headwinds, Irwin is optimistic that emerging market equities will continue on a positive trajectory, with plenty of room to run. He notes that Allspring is already having conversations with some U.S.-based retail intermediaries about the asset class, though he declined to disclose which ones.
Wealth Management recently spoke to Irwin about the outlook for emerging markets equities, which countries and companies might offer the best opportunities and how the global geopolitical situation is affecting the sector.
This Q&A has been edited for length, style and clarity.
Wealth Management: How much demand are you seeing from investors for emerging markets equities?
Derrick Irwin: We started to see, in emerging markets equities as a whole, a real sea change in flows starting in about April [of last year], around Liberation Day. Through 2025, there were about $51 billion in inflows, $31 billion net. It was a pretty good year after a pretty soft few years, with general outflows. So, we did begin to see some interest and that definitely accelerated into January and February, to the tune of about $70 billion.
A lot of it was ETF flows, which suggests to me that it was investors who were looking for more tactical trades than a strategic allocation. We began to see that shift a little bit early in the year, with more money beginning to flow into strategic allocators like ourselves. We had what I would consider substantial conversations with investors worldwide. I was on the road for almost a month earlier this year, speaking to investors in the U.S. and Asia, so we have seen a lot of interest in the asset class.
I would say for strategic investors, it’s probably still more conversation than action. I think investors were kicking the tires in emerging markets for the first time in a long time. We’ve seen some positive flows. Obviously, March rolled around, and that was put on hold. We did see some outflows from the asset class, but less than you might think in March, as investors got a little scared because of the Iran crisis. Since April, we have seen a return to tepid inflows. So, I think there is a sense among investors that EM is an interesting opportunity even in this more chaotic global equity environment, maybe even more so because of this chaotic environment.
WM: Is it possible to break down how much of that demand is coming on the U.S. side specifically?
DI: These things tend to follow a pretty clear pattern: institutional investors outside the U.S. start to get interested, and then we see retail and family offices outside the U.S. get interested. And then the big institutional investors within the U.S. start to get interested, and then the retail investors follow.
If we look at that time zone, we are now in zone three. We are having more and more conversations with large institutional investors. My calendar is pretty full for the next few weeks with that. And then it starts to roll into more retail intermediary channels. I’ve got a few conversations coming up with folks like that, but it’s still early. Generally speaking, U.S. retail investors tend to be a little slow to jump into EM. In part, it’s kind of exotic for them. In part, why bother when the U.S. is doing well? But the cycle we normally see is progressing as expected. If we do have another good year of outperformance by emerging markets, then I would expect to see interest on the retail side.
Clearly, there are a lot of risks around Iran, and if we see a massive rolling crisis globally, all bets are off. But the resilience of emerging markets has probably never been better. From a macro standpoint, they are in great shape. From an external funding needs standpoint, they are in great shape. So, while I am concerned about the risks, I am very impressed with how they are weathering this risk.
WM: How are emerging markets equities positioned today?
DI: I think there have been a few big drivers for EM now. One is a broad desire amongst global investors to reallocate some of their overweights to the U.S. markets. There has been a lot of capital flowing into U.S. markets, and they’ve become increasingly concentrated and expensive. With the U.S. dollar and the general chaos in the U.S. with tariffs and whatnot, there is a sense that diversifying away from the U.S. makes some sense. And in that context, emerging markets appear reasonably inexpensive.
Emerging markets are helped by a few factors. One is really good economic fundamentals. Since 2024, we are seeing a concerted trend toward improving economic data. It’s been continuously better than expected. Conversely, inflation is coming in lower than expected. So, falling inflation, improving economic conditions—a pretty good environment to be in from a macro standpoint. We also saw accelerated earnings, with good earnings in 2025 and 2026. Even now, as some of those earnings expectations moderated after Iran, we still expect to see better earnings growth than in most developed markets.
One more notable item that is not minor is, of course, while we are focused on the AI trade in the U.S. and the Magnificent Seven and the hyperscalers, it’s very clear that the derivative of that with regard to chip manufacturers in Taiwan and South Korea is very important. They have been incredible performers, with incredible earnings growth, so that’s been a real attraction for investors.
WM: Are there certain regions or countries that are best for investment? Why?
DI: We have to start the conversation there with the tech sector, in particular in Taiwan and South Korea. There has been a lot of ink spilled there, but it is increasingly important for overall earnings growth in EM, and they are becoming bigger pieces of the benchmark.
I would say we look at that in two ways. One is that they have great fundamentals, no question about it. Earnings growth has been great, they have been very deliberate around over-expansion and capital expenditure. Certainly, the demand and the length of that cycle seems to be very healthy. But also, this is not unknown. So a lot of flows, both from overseas and from within emerging markets, are going into these companies. We’ve got ETFs that just track 2x the performance of SPIX and 2x the performance of Samsung, as well as one-stock ETFs, and they’ve seen tremendous inflows. It’s probably getting a little concentrated and something we need to watch, but clearly the most important driver of emerging markets right now.
But maybe more interesting, as we look further afield, are the underappreciated developments in China regarding AI. The Chinese AI ecosystem has developed totally in parallel and totally separately from that in the West. What Anthropic does or what ChatGPT does has no bearing whatsoever on Chinese AI. We have this almost uncorrelated AI asset that’s growing, and it’s been built around models that are much less expensive. I was just reading that a new DeepSeek model is priced at $3.50 per token, vs. $25 per token for OpenAI. They are open source, so they are being used all over the place. And most importantly, they are being developed by the big platform companies in China that are immediately putting them to use to generate returns on these models. So, for instance, Tantan, a big social media and dating platform in China, just reported earnings, and they had a 17% increase in their advertising revenue largely because they’ve done a very good job around using their AI to drive advertising engagement. So, it’s cheaper to deploy, unique models to China, and they are being put to work more quickly.
The second part of why we are sticking in China is some of the consumer-facing names. We are seeing signs of stabilization. These are early signs; PMI is coming up, CPI is now above zero. You are starting to see signs that consumers are putting money to work a little bit. And if they do, there are a lot of consumer-related names that are trading at, let’s face it, distressed multiples. And we could easily see a scenario in which those companies become very attractive, and their share prices perform very well. That’s a little bit farther out, it’s not a today thing, but it might be a 2026 thing.
Outside of that, it gets a little more complicated and nuanced. Brazil, for instance, is sort of a weird one. At the beginning of the year, I would say we were very excited about Brazil because it’s a country with very high interest rates, 14%. But inflation has come down, to something like 4%. We figured rates there were coming down over time. Obviously, Iran and global inflationary pressures have probably put that on hold, but I think the direction there is pretty clear—that, as the Iran crisis unwinds, we should see interest rates move lower. That’s really good for interest rate-sensitive brands in Brazil, it’s really good for the Brazilian consumer. So, we think there are some pretty interesting opportunities there. In the meantime, high oil prices have been great for Brazil because it’s a big exporter of fuel.
Like Brazil, South Africa is another country where we expected interest rates to come down. And Iran has put that on hold. We are now seeing inflationary pressures that are making emerging-market central banks nervous, and expectations around rate cuts have probably changed, to at least staying on hold and, in some countries, maybe even going up. But, eventually, I think the structural factors that were driving inflation down will continue to drive rates down over time.
Finally, when the Iran crisis came along and threw a huge monkey wrench into 2026 economic projections, it created an awful lot of volatility. From our perspective as investors, particularly long-term, bottom-up investors focused on high-quality companies, this is interesting. If we have conviction in the companies we’d like to own and in their long-term valuation, we can use this volatility to start to buy really good companies at depressed valuations. For example, in March, we were in South Africa adding to positions.
WM: How might global trends—interest rates, the war in Iran—impact emerging market performance going forward?
DI: Coming into the Iran crisis, it was a pretty clean thesis. We really felt that with falling inflation, improving economic growth and a weaker dollar, there was a lot of room for EM economies to cut rates aggressively. We felt that would begin to snowball through 2026. The crisis in Iran has, in many ways, put that on hold. We’ve seen central banks in a number of countries kind of move to a more cautious stance around rate cuts as they try to absorb higher fuel costs and higher input costs. My view is, if the Iran crisis begins to improve reasonably soon, we should start to see a reversion to that previous condition of inflation getting better and interest rates continuing to fall. And that becomes a very positive driver for emerging markets.
However, as time goes on, we need to be careful that the expectation that inflation and oil price spikes are going to be short-lived becomes more entrenched and more structural. In that case, we start to see central banks holding off for longer, maybe even raising interest rates and that thesis begins to unwind.
Right now, we are at a very important point in this crisis where either things start to improve, or, potentially over the next few weeks, we start to see a non-linear crisis, whether it’s countries going into lockdown because they don’t have fuel or maybe things like helium or other inputs into chipmaking become constrained. And then we start to see a real problem with inflation and global growth. I don’t pretend to know, but I am very struck by the difference in tone when I speak to investors in the U.S. vs. investors in Asia. Investors in Asia are not just concerned about higher fuel prices; they are also concerned about access to any fuel. It’s a very acute, real concern. In many ways, investors in the West are a little too complacent about the potential risk and it’s something we need to watch.
The flip side of that is that I have been very impressed with how resilient Asian economies, which are much more exposed to Middle East oil, have been in managing demand and finding supply. In March, there were plenty of very smart people who would have said one to two weeks out we’d be in some sort of major global crisis. Here we are deep in April, and that’s not materializing. And I think that’s a function of EM economies, governments and individuals are much more resilient than we think. But I don’t know how long that lasts.
WM: What happens if the Iran crisis is not resolved soon, or at least, if the Strait is not open in the near future?
DI: If we are looking at six more months of the closure of the Strait, I don’t see how we don’t have a big problem. When I talk to oil and gas analysts, they seem a lot more concerned than others. I was reading today that the last shipments of petrol chemicals that were leaving the Gulf before it was closed are scheduled to reach Asia about now. That means that anything after that, like plastics, we begin to have real supply issues.
Probably what happens is that we come up with some sort of short-term agreement that gets the Strait moving at least a little, so we could negotiate the rest of the crisis. I read as well that even if we open up the Strait today, getting rid of that logjam and getting back to normal will take a long time. A full closure of the Strait for six months is one of those risk-management scenarios people used to run when they wanted to be as crazy as possible. I hope it doesn’t occur.
Clearly, there are a lot of risks around Iran. But the resilience of emerging markets right now has probably never been better. From a macro standpoint, they are in great shape. That continues even if things get worse.
WM: As more investors come into the EM equities space, pricing might also go up. How much time do retail investors have to take advantage of the reasonable valuations there?
DI: There are two ways to look at that. From a historical standpoint, even now, they are kind of around their long-term 10-year average. That 10-year average has been that expensive. So, I think there is plenty of room for EM valuations to expand from here, but sectors like the big tech leaders have seen their valuations become more full. But even there, they are not stretched. They are trading at less than their peers here in the U.S. Even compared to their own history they are not out of control because earnings have gone up.
Relative to the U.S., they are very compelling. They have almost never been cheaper. So, from a relative standpoint, it’s a no-brainer.
I am comfortable that emerging markets have a long way to run before we have to worry about them being too expensive. And there’s also a lot of room for inflows. I mentioned about $31 billion net inflows in 2025, which puts EM as a percentage of global AUM into somewhere like 5.3%. And just to get back to our 10-year average, which is somewhere around 6.7% range, it’s about $500 billion of potential inflows into the asset class. So, I think there is plenty of room from a valuation standpoint, and from a flow standpoint, for emerging markets to have room to run.