Investors are increasingly interested in emerging market assets, seeing them as likely sources of high returns.
According to a new report from Bank of America (BofA) Securities, these assets are expected to yield “several percent” returns in 2025, mainly due to a weakening US dollar.
This prediction appears amidst rising economic uncertainties in the US and changes in global currency markets.
With the dollar index already down nearly 9% this year, emerging economies could benefit from better conditions, possibly attracting significant capital inflows.
What’s Causing the Dollar’s Decline?
The fall of the US dollar in 2025 can be linked to several reasons. The dollar index, which compares the currency’s strength against other major currencies, has dropped nearly 9% this year.
This decline is tied to uncertainties around US policy-making, potential economic challenges from tariffs, and a softening job market.
Moreover, new data shows that the stance of the Federal Reserve regarding monetary policy, alongside fiscal worries and a rising yield curve, has reduced the dollar’s appeal as a safe investment for global investors.
Bank of America’s Positive Outlook
Bank of America Securities, through the insights of strategist David Hauner, is optimistic about the prospects of emerging market assets for 2025.
BofA expects that the ongoing decline of the US dollar will serve as a driver for returns in these markets.
Hauner specifically mentioned that emerging market assets could achieve returns of “several percent” this year, which aligns with recent trends in the market.
In early June 2025, emerging market stocks have experienced consistent gains, with South Korean assets leading the way after a presidential election.
Notable Regional Strengths and Gains
Some regions and countries within emerging markets are already showing remarkable resilience.
For example, the MSCI Emerging Market index has outperformed the S&P 500 by over 7% this year.
South Korea has seen its assets achieve outstanding gains recently, thanks to political changes and positive economic indicators.
Local sovereign debt is averaging a return of 5.7% this year, with Brazil being the top performer at 20% gain, bolstered by carry trades.
In carry trading, investors aim to profit from the interest rate differences between two currencies or assets.
Latin American markets are also surprisingly thriving in 2025, reflecting renewed interest from investors.
These advancements are partly due to a favorable currency landscape and improved trade conditions linked to the dollar’s decline.
In addition to stocks, emerging market currencies are gaining from the changing global environment.
As fiscal concerns steepen the US yield curve, the link between rising US term premiums and a weaker dollar has become clearer, benefitting these currencies.
This trend highlights the interconnectedness of global financial markets and how US economic policies impact emerging economies.
What This Means for Investors and Global Markets
For investors, the potential profits in emerging market assets come with both opportunities and challenges.
On one side, the weakening US dollar and BofA’s favorable outlook indicate a chance for portfolio diversification and increased returns.
Conversely, emerging markets can be volatile due to geopolitical tensions, sudden policy changes, or unexpected economic shifts.
Investors should consider a cautious approach to these markets, utilizing in-depth research and risk management strategies.
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