President Donald Trump’s pressure campaign for more Fed rate cuts is adding to the prospects of developing-market assets next year.
If 2025 seems like a strong year for emerging markets, just wait for 2026, Fidelity International says.
The money manager, with more than $1 trillion in total assets, is joining a growing number of Wall Street banks betting the dollar’s decline will help drive gains for developing-nation assets into next year.
President Donald Trump has pushed for more interest-rate cuts from the Federal Reserve and his administration appears comfortable with a currency close to erasing last year’s advance. That’s bolstering the appeal of assets in developing economies where rates are higher and their currencies have room to appreciate, Mike Riddell, portfolio manager of the Fidelity Strategic Bond Fund, wrote.
“While the EM trade has been talked about all year, the money, in bulk, has yet to arrive,” Riddell said. “This sets the scene for 2026, where we see the possibility of much greater allocations into emerging market debt.”
Asset managers have a high bar to clear if they look to surpass 2025’s performance in emerging markets. EM currencies and stocks are set for their best year since 2017, MSCI Inc. gauges show.
Riddell calls the softer greenback a “structural change that has only just begun to play out.”
His view chimes with recent calls by Morgan Stanley, Bank of America Corp. and Goldman Sachs Group Inc., which are gearing up for more weakness in the US currency. In contrast, Citigroup Inc. strategists this week recommended emerging-market investors seek trades cushioning against a potential rebound in the dollar.
Riddell cited Brazil as an example of an emerging market with room to rally. The country has a central bank rate of 15%, a “solid” economic outlook, and inflation around 5%, he said.
“Holding Brazilian sovereign bonds at these real yields feels like a no-brainer,” Riddell said.
And much of the dollar’s move so far has been against the euro, he added.
“By contrast, many of the major EM currencies are priced more for crisis than current realities: there is more room here to run.”
