July 2025 – Global emerging market equities have delivered strong—but uneven—returns this year, with South Korea and Brazil emerging as standout performers. South Korea’s benchmark index has surged approximately 28% year-to-date (YTD), while Brazil’s Bovespa is up around 16%, buoyed by resurgent commodity exports and renewed investor confidence in fiscal management. By contrast, many other emerging markets have lagged, underscoring the widening divergence within the EM complex.

Seoul’s Rally: Reforms and Semiconductors Fuel Investor Optimism

South Korea’s equity markets are seeing a robust re-rating, led by global enthusiasm around semiconductors and corporate governance reforms. In particular:

  • Semiconductor stocks, such as Samsung Electronics and SK Hynix, have gained sharply amid soaring demand for AI chips and memory components.

  • The government’s push to improve shareholder returns—via mandatory dividend enhancements and minority investor protections—has improved South Korea’s historically low equity valuations.

  • Foreign institutional flows have accelerated, encouraged by more transparent disclosure rules and proposed reforms to the chaebol structure.

Notably, South Korea’s export data continues to outperform regional peers, with double-digit growth in high-tech components, particularly in AI-related supply chains.

Brazil Rides Commodity Wave and Policy Credibility

Brazil's rally is fueled by a different set of tailwinds. The country is benefiting from:

  • High global commodity prices, particularly in iron ore, soybeans, and oil, which have supported trade surpluses.

  • President Lula’s administration has maintained primary fiscal discipline, defying market fears of excessive spending.

  • The central bank’s proactive monetary easing—starting ahead of global peers—has revived domestic consumption and credit growth.

Additionally, Brazil is increasingly viewed as a climate-transition investment proxy, given its renewable energy capacity, critical minerals, and green agriculture ecosystem.

Diverging Fortunes Across the EM Landscape

The strong equity performance in Korea and Brazil stands in contrast to more muted returns in several other emerging markets:

  • China remains volatile, with recovery still uneven amid structural property sector concerns.

  • South Africa and Turkey face inflation and currency pressures that have weighed on investor sentiment.

  • India, while still attracting long-term inflows, has traded sideways in recent months due to stretched valuations and policy caution ahead of state elections.

According to data from global EM ETFs, Latin America has outperformed broader EM indices by more than 500 basis points YTD, with Brazil accounting for the lion’s share of that excess return.

Global Allocation Trends: Selectivity Over Broad Exposure

Investor behavior is shifting away from broad-based EM exposure to country-specific allocation, with South Korea and Brazil now attracting disproportionate weightings in EM-focused funds and mandates.

  • Sovereign wealth funds and pensions are rebalancing toward high-reform and high-yield EMs, particularly those aligned with energy transition and chip sovereignty trends.

  • ESG-focused funds are warming up to Brazil’s improved environmental commitments, particularly around Amazon deforestation targets.

  • Quant strategies are rewarding EM markets with earnings momentum, currency stability, and policy consistency.

Bottom Line

While emerging markets as a category are regaining favor, 2025 is proving to be a stock-picker’s and country-picker’s market. South Korea’s tech-led resurgence and Brazil’s commodity-fueled discipline highlight the alpha potential of well-positioned EMs in a structurally changing global economy.

With macro volatility still in play globally, investors will likely continue to prize reform momentum, policy credibility, and sectoral tailwinds as key differentiators within the emerging markets landscape.