BofA warns Fed risks policy mistake with early rate cuts
Investing.com - Emerging markets that struggled in 2024 have staged a significant comeback in 2025, with Latin American equities rallying 29% year-to-date in USD total return terms, according to a new report from Bank of America.
The rally appears to be driven by global rather than domestic factors, with most large emerging markets posting strong gains in dollar terms. South Korea, South Africa, Mexico, UAE, China, and Brazil have all risen over 25%, with previously depressed valuations and currencies from last year now rebounding.
Currency appreciation has been a major contributor to these returns, accounting for nearly one-third of USD emerging market gains. Brazil and Mexico saw particularly significant foreign exchange appreciation against the dollar, with their currencies having depreciated close to 20% in 2024 before this year’s recovery.
Fund flows have reversed course in 2025, with emerging markets (excluding China and Taiwan) receiving $5 billion in inflows this year compared to $23 billion in outflows during 2024. Mexico saw accelerated inflows during the first quarter of 2025, while Brazil experienced increased inflows during the second quarter.
Bank of America suggests Latin American markets could continue to perform well due to deep easing cycles, though it cautions that election news flow will likely influence market sentiment and technical indicators are not as attractive as they were at the beginning of the year.
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