1. Emerging markets (EMs) outperformance: EMs have outperformed global equities year-to-date, with a number of factors driving gains, including US dollar weakness, domestic demand opportunities and policy flexibility. EM equities have historically outperformed global equities during periods of US dollar weakness, and this cycle appears to be similar. The potential for growth in domestic demand to offset Trump tariffs also spurred interest in EM equities. In addition, the policy flexibility that EM governments have, in contrast to limited flexibility in developed markets, has also supported EM equities. Taken together, these factors support our view that EMs are underowned, undervalued and underappreciated.

2. Mexico moves closer to a deal: US President Trump has made it clear that he wants to renegotiate the United States-Mexico-Canada Agreement (USMCA), which he agreed to in his first term. Mexico’s president, Claudia Sheinbaum, has been quick to address US concerns, delivering a dramatic reduction in immigration and making progress on the flow of Fentanyl into the United States. The market seems to expect that the two countries and Canada will successfully renegotiate the USMCA and prevent a surge in tariffs, as reflected in the 20% gain in the MSCI Mexico Index year-to-date.

3. South Korean equities manage to advance: The country announced an increase in its support package for the semiconductor industry to cope with heavier costs and launched a supplementary budget to support key industries. The country’s central bank also paused its easing cycle and kept its policy rate steady to stabilize the Korean won. 

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