Sebastian Mullins
A change in global monetary conditions is reshaping the investment outlook for emerging markets, Sebastian Mullins, head of multi-asset at Schroders Australia says.
Mullins says the end of an extended period of US dollar strength and high Federal Reserve interest rates has eased a major constraint on emerging economies, allowing central banks to focus again on domestic growth.
“Emerging market policymakers had little room to move, but that constraint is easing,” Mullins says.
“With US rates coming down and the dollar off its peak, many emerging markets can lower their own interest rates to support growth without risking sharp currency weakness.”
Mullins says this shift supports a broader reassessment of emerging markets.
“We’re moving away from a period where emerging markets moved almost entirely in step with the Fed or China,” Mullins says.
“That influence is fading, and we’re starting to see which economies can generate growth on their own terms.
“Countries that used the last cycle to strengthen policy credibility and control inflation are now better placed to benefit.”
South America could be potential beneficiary of this environment, supported by valuations, earnings trends and political dynamics.
“Valuations are low relative to history and other emerging regions, corporate earnings are improving, and in countries such as Chile there are signs of a shift toward more market-friendly policies, which could support investment and growth,” Mullins says
Elsewhere, heavy global investment in artificial intelligence is driving demand for physical infrastructure, supporting Asian economies that sit at the centre of the technology supply chain. At the same time, changes in global trade and supply chains are favouring countries such as Mexico as manufacturing moves closer to end markets.
While Chinese technology stocks have rallied, Mullins sees this as a short-term adjustment rather than confirmation of a sustained recovery.
“The recent engagement between policymakers and the tech sector sent a signal, and parts of the market reacted,” Mullins says.
“But a broader re-rating of Chinese equities will require stronger fiscal support aimed at the domestic consumer.”
While Schroders remains positive on global equities into 2026, it expects leadership to broaden.
“The US has delivered strong returns, but valuations are elevated,” Mullins says.
“As conditions shift, emerging markets have more freedom to act. For investors, this is one of the more attractive opportunities the asset class has offered in recent years.
“In 2026, we may be paying the same attention to the economic decisions made in Sao Paulo and Mexico City as the next move in Washington.”