For much of 2025, advisors have looked to international markets for a crucial source of diversification amid U.S. uncertainty. Among the international investment strategies that have been employed thus far, emerging markets portfolios have a particularly potent use case right now. This could be due in part to a multitude of factors.
To begin, emerging markets can help advisors tap into a layer of diversification even beyond that of traditional international markets. For those looking to build the most well-rounded portfolio possible, an emerging market allocation can help reduce portfolio correlation to macro movements from U.S. and other international markets.
Furthermore, emerging markets can offer significant long-term growth potential. This makes emerging market funds and ETFs a great use case as an alternative for an investor looking to pull out of a U.S. growth fund due to uncertain market conditions.
That said, emerging markets aren’t necessarily a foolproof investment strategy. They tend to face a litany of risk factors. These include political challenges, lack of liquidity, and increased risk of bankruptcy, among others. As such, it’s important for advisors to make sure they choose to allocate toward the right kinds of emerging market countries.
Keep Giving China a Chance
It’s probably not an understatement to say the investment community’s relationship with China this year has been relatively rocky at best. After all, the country was the recipient of some of the harshest tariff threats from the U.S. government this year.
However, these tariffs could actually work in the favor of crafty investors for a few reasons. To start, tariff threats and other macro factors knocked China equities out of favor for quite a while. That created a good opportunity for value investors to pick up discounted stocks poised for long-term success.
Furthermore, concerns over how China would navigate U.S. tariff risks may have ended up being overblown. After all, it’s not like China is exactly a stranger to dealing with tense trade conditions with the United States. The country has had to be nimble in the past to keep its economy in the No. 2 spot, and 2025 has proven to be no different.
For instance, China has implemented a swath of policies to help protect its own economy from tariff impact. And to offset some of the trade losses with the U.S., China is now looking to trade with other countries.
India Offers Stable Growth Opportunities
At this point, if advisors aren’t already keeping a close eye on India’s market, they may want to consider doing so now. In terms of GDP, India has gone from ranking 11th in the world in 2009 to currently ranking fourth in 2025, according to the International Monetary Fund.
Considering how quickly India moved up the IMF’s scoreboard, it’s important to understand how the emerging market country accomplished that. While there are plenty of macroeconomic factors to consider, there are also many near-term conditions that are working in favor of the country.
Notably, India’s robust IT sector is playing a crucial role in how many tech giants are expanding operations. This includes companies like Alphabet, Meta, and OpenAI, among many others.
Fiscal policy from India’s government is also widely projected to help the country continue to grow in the near term. For instance, India recently reduced taxes in an attempt to bolster consumption spending and lower the impact of U.S. tariffs.
When it comes to positioning an emerging market portfolio, many look to India stocks for their immense growth potential. Given where things currently stand for the country, it certainly seems like advisors could see even more growth from India equities down the line.
Brazil: A Potential Wild Card?
Many investors with some emerging market exposure likely are at least partially exposed to India or China equities. However, the same might not necessarily be true for market exposure to Brazil.
The 2025 story for Brazil’s market is a bit of a strange one. The country’s first quarter real GDP grew 5.7% on an annualized basis when compared to last quarter’s numbers. However, economists do not expect the good times for the Brazil to last.
In fact, many expect the country’s economy to slow to some extent for the remainder of the year, due in part to higher interest rates and inflation. Furthermore, U.S. tariffs against Brazil could also pose a threat to the country’s economic growth.
Keeping this in mind, it may sound strange to consider picking up Brazil stocks right now. However, many of the barriers that Brazil’s economy is currently facing may not be much of a problem in the long term.
Inflation may remain a bit of a problem for the country, but Brazil may resume trimming rates in the coming months or in early 2026, providing crucial monetary easing. Furthermore, the country is currently taking steps to foster far stronger trade relations with both the European Union and China. These new trade partnerships can help blunt the effects that U.S. tariffs may have on Brazil’s economy.
All in all, careful emerging market advisors could pick up some high-quality Brazil stocks at a discount and hold them in a diversified portfolio until the country’s economy gets back on its feet. By doing so, advisors could tap into deep long-term value that many traditional investors might have overlooked.
Originally appeared on Advisor Perspectives
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