Venezuela Turmoil Does Not Alter Emerging Markets Investment Mainline – Multiple Institutions Recommend Increasing Allocation to Related Assets
Emerging markets are expected to continue attracting capital in 2026, primarily due to the persistent weakness of the dollar and investors' optimism toward the Asian tech sector, particularly artificial intelligence.
On Monday, despite heightened geopolitical uncertainty from the U.S. arrest of Venezuelan President Maduro, the dollar — as a safe-haven tool — still declined, with the Dollar Index closing down 0.16%. Meanwhile, the MSCI Emerging Markets Currency Benchmark Index recovered losses during trading, and emerging market currencies like those of Colombia and Brazil rose amid the geopolitical disturbance.
Monex USA Senior Trader Juan Perez said emerging market currencies have returned to the upward trend that began last year. U.S. actions in Venezuela are unlikely to translate into strong dollar gains — the dollar's appeal as a safe-haven is waning.
Bank of New York Senior Market Strategist Geoff Yu also noted that while 2025 saw only small-scale selling of dollars and U.S. assets, it is undoubtedly a long-term trend. With escalating trade tensions, he suspects investors will take more aggressive actions in the future.
Meanwhile, the MSCI Emerging Markets Index rose 1.6% Monday, closing at a historical high. Saxo Bank Chief Investment Strategist Charu Chanana emphasized that growth momentum in Asian tech and AI supply chains will continue pushing the index higher, though the pace may be slower and more volatile.
Reasons for Optimism
Markets are seeking new catalysts for the next leg up in emerging markets — upcoming U.S. economic data and key corporate earnings could provide clues. However, Fed rate cut uncertainty, geopolitical tensions following the U.S. raid on Venezuela, and multiple elections in Latin America are keeping some investors cautious.
Nevertheless, Orbis Investments Emerging Markets Portfolio Manager Stefan Magnusson pointed out that at current prices, the deeper risk may lie not in holding emerging market assets but in avoiding them.
He added that over the past 15 years, emerging markets have significantly underperformed developed markets with higher volatility — making them less appealing for rational, moderate-risk investors. But valuations are flashing warnings: U.S. stocks trade at nearly 38x P/E, while emerging markets are around 16x — below long-term averages.
He also noted that historically, when U.S. stock multiples reach this level, expected 10-year returns are typically single-digit. In contrast, emerging markets offer broader earnings options with more positive overall trends.
JPMorgan Emerging Markets Growth and Income Fund Manager John Citron further emphasized rising investment appeal beyond valuations — such as China’s policies to boost consumer confidence and stabilize real estate, improving market sentiment.
Another key factor is technology. Citron analyzed that Taiwan and Korea continue playing critical roles in memory chips, advanced processors, and data center hardware supply — leading companies like SK Hynix and TSMC have already benefited immensely from growing demand.