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For decades, emerging markets (EM) were seen as sources of volatility risk. Developing equity markets were one and a half to two times more volatile than their developed peers, and many investors treated EM as a peripheral allocation rather than a core holding. That perception lingers, but it no longer reflects reality.
Today that picture looks very different. The gap has steadily narrowed, and in some periods, such as the March 2020 pandemic sell-off, U.S. equities have been more volatile than EM.
That shift is no accident. It reflects not only changes in index composition, but a deeper transformation. Over the past two decades, many EM economies have embraced pragmatic policies, stronger fiscal discipline, and institutional reform. At the corporate level, disclosure standards, governance, and operational practices have converged with global norms. Collectively, these reforms have reshaped what it means to invest in emerging markets.
The EM-ification of Developed Markets
Not only has EM volatility fallen, but developed markets have started to look more like emerging ones. Inflation shocks, abrupt policy pivots, and heightened political risk are no longer confined to EM.
This “EM-ification” of developed markets has blurred the old distinctions. The world in which developed markets were synonymous with stability and EM with risk has gone. Investors now face a more level playing field — and in some cases, EM fundamentals are stronger. Fiscal positions are often more conservative, central banks more orthodox, and policy direction more predictable in EM than in parts of the developed world.
For global equity portfolios that remain structurally underweight EM, this shift demands attention.
Stronger Foundations; Better Resilience
The past five years have provided repeated stress tests. In 2020, EM weathered the pandemic downturn better than the U.S. In the first half of 2025, despite radical trade policy changes in Washington and conflict in the Middle East, EM equities again held up well.
Why? Because the policy backdrop in many EM economies is clearer and reforms are more consistent and deeper. China has reaffirmed the role of the private sector. India is pouring concrete into infrastructure. The Gulf states are pressing ahead with economic diversification. Asia continues to anchor the global technology supply chain.
Economic, fiscal, and monetary policies across EM have become more orthodox, better understood, and more credible. And the corporate landscape has advanced too: Governance, disclosure, and transparency standards have risen sharply over the past two decades, strengthening investor confidence.
