2 reasons why emerging markets remain attractive

Investing.com -- Emerging markets have been hit hard by the latest wave of U.S. tariffs, with Chinese goods facing levies of up to 35% and India and Brazil up to 50%.

Yet, Carlos Hardenberg, investment manager at MCP Emerging Markets LLP, argues that “despite the current wave of global protectionism and escalating trade tariffs, emerging markets continue to offer compelling investment opportunities.”

He highlights two key factors underpinning their resilience: strong domestic demand and growing trade diversification.

India illustrates how robust internal consumption can act as a shield against external shocks. With over 1.4 billion people and private consumption worth $2.1 trillion in 2023, the country’s economy is driven more by households than exports.

Hardenberg points out that India is set to become the world’s second-largest consumer market by 2030, with 773 million consumers, up from 529 million in 2024. This is already visible in luxury spending, where car sales have grown 35% annually since 2019 and ultra-luxury home sales surged 50% in 2023.

Demographics and reforms add further support. A young population, rising incomes, and rapid urbanisation are boosting demand for premium goods and services.

Hardenberg noted that Prime Minister Narendra Modi’s “next generation GST reforms,” slated for October 2025, will simplify the indirect tax regime and likely give a further lift to consumption.

The reform is expected to benefit sectors such as autos, cement, apparel, footwear, insurance and affordable hotels.

Brazil offers another example of resilience through trade diversification. Despite steep U.S. tariffs, Hardenberg stresses that the impact on Brazil’s economy should be limited. Exports to the U.S. make up just 12% of Brazil’s total, and Capital Economics estimates even a blanket 50% levy would shave only 0.3–0.5% off GDP over three years.

Markets have taken the news in stride, with the real up 10% against the dollar and the BOVESPA index rising 14% this year.

Brazil has also deepened trade ties within the BRICS group, especially with China and India. Hardenberg recalls that during the 2018 U.S.–China trade war, China ramped up its purchases of Brazilian soybeans, a pattern that is repeating in today’s tariff environment.

Similarly, ASEAN economies are increasingly trading with one another, with intra-ASEAN commerce reaching 21.5% of total trade in 2024, valued at $3.5 trillion.

In conclusion, Hardenberg believes that in a world of rising protectionism, investors should “look beyond export data and instead focus on the structural strengths of emerging markets,” particularly large, growing populations and diversified trade links.

India and Brazil, he says, exemplify economies well placed to remain resilient against higher tariff levels.