'Korean manufacturers are among the most important and fastest-growing suppliers to the US grid, giving them a very good name this year,' says Fiera's Mathieu Bortot
As institutional investors look beyond developed markets amid a global trade war, emerging economies continue to offer both opportunity and uncertainty. But for veteran investors, thinking of emerging markets as a single, cohesive asset class is a mistake that can cloud the view of what’s really going on beneath the surface.
“At its core, ‘emerging markets’ is a benchmark construct assembled by Index providers, not a homogenous market,” says Mathieu Bortot, portfolio manager at Fiera Capital, who emphasized the diversity and disparity within the EM universe. “The way that we argue EMs should be looked at is as an opportunity set rather than just one asset class,” he says.
Stephen Dover also agrees.
“Emerging markets are still very fractured,” says Dover, chief market strategist and head of the Franklin Templeton Institute, pointing to the geopolitical fault lines between China and the West, but also to the uneven evolution of EM benchmarks.
“The benchmarks have changed tremendously over the last 20 years from commodities and export-driven to much more technology and value-added,” he adds.
That shift has made some countries particularly interesting to investors. Korea, for example, came up repeatedly as the underdog among the larger EMs. Bortot underscored that Fiera’s emerging markets strategy is built around identifying country-level catalysts. For the past 18 months, Korea has been their largest overweight position.
“What differentiates us from most of the other EM funds,” Bortot notes, “is that whenever we look at countries, we look at what is the predominant driving theme... and then see anything tangent to that.”
In Korea’s case, the catalyst was a top-down political push to reform long-standing corporate governance issues. Historically, Korean equities have traded at a discount due to the dominance of chaebols - family-owned conglomerates that prioritized control and capital retention over shareholder returns.
“A portion of the companies wanted to keep the wealth within the family,” Bortot explained, noting that meant minority investors were left without fairer dividends, buybacks, or governance protections.
That changed, he says, when the government initiated structural reforms aimed at improving transparency, boosting shareholder value, and encouraging capital returns. The firm saw the shift gaining momentum at both the political and corporate levels. “We saw some big commitment to that and a big systemic shift in the whole market,” adds Bortot.
Bortot sees two standout investment stories in emerging markets right now, one among the major players and one from the smaller end of the spectrum. In the large-cap space, Korea is his top pick.
“Korea has been by far the most exciting opportunity,” Bortot says, crediting the government’s “value-up” reform program for triggering a market-wide re-rating. The reform was driven by demographic pressure: an aging population with insufficient pension coverage.
To address this, authorities pushed conglomerates to dismantle inefficient ownership structures, eliminate treasury shares, and return more capital to shareholders through buybacks and dividends.
“These changes happened across all sectors,” he says, citing early progress in the banks and later gains in semiconductors. Korea’s strategic role in supplying US energy grid technology has also elevated its relevance.
“Korean manufacturers are among the most important and fastest-growing suppliers to the US grid, particularly in large power transformers, which has given them a very good name this year in emerging markets,” says Bortot.
Dover also singled out South Korea as another standout supported not just by a stable alliance with the US, but also by its global leadership in semiconductors, shipbuilding, EV batteries, and even cultural exports like K-Pop and Korean beauty products. Despite its performance, “it’s still relatively inexpensive,” he said, suggesting further upside.
But one of the most notable shifts for Dover, is the rise of the Middle East within EM as he notes “it’s now eight per cent of the benchmark, up from two per cent just a few years ago.”
Once absent from EM indices entirely, Middle Eastern markets are gaining weight quickly, both due to growth and increased index inclusion. He credited this to sweeping structural reforms, economic liberalization, and a deliberate shift toward development priorities over geopolitics.
“Those countries kind of want to get on with it,” he says, pointing to heavy investments in data centers, renewable energy, tourism, and education. “Their desire to get on with living a life is driving them to try to be less geopolitical and more just focused on economic growth.”
Dover also highlights Mexico, which stands to benefit from shifting trade patterns and supply chain regionalization, as well as Indonesia and Brazil. Indonesia, he adds, is riding a wave of electrification demand, especially for batteries, whereas Brazil, despite political volatility, is managing cyclical reforms well and continues to benefit from its commodity base.
He acknowledged that EMs have underperformed over the past decade, largely due to weaker earnings growth compared to developed markets. But with valuations low and the dollar weakening, he believes that dynamic is about to shift.
“Emerging markets earnings don’t have to change that much because they’re relatively less expensive,” he says. “If you have the tailwind of a falling dollar, I think emerging markets can continue to outperform developed markets.”
Among smaller emerging markets, Greece stands out for Bortot as an unexpected success. After years as Europe’s financial outlier, Greece implemented a major banking sector overhaul beginning in 2021. Aided by the European recovery fund - equal to ~20 per cent of GDP - the country recapitalized its banks, cleared out non-performing loans, removed state ownership in the majority of these, and reintroduced dividends.
“Today, they are amongst the most profitable banks in the Eurozone, still trading a decent valuation,” Bortot says. That recovery has made Greece one of the best-performing markets this year, offering genuine domestic growth potential compared to the internationally exposed listings elsewhere in Europe.
“If you’re looking for a strong domestic growth and fundamentally driven market, Greece has really stood out,” he says.
