2 reasons why emerging markets remain attractive

Despite escalating global protectionism and tariffs, emerging markets, particularly India and Brazil, demonstrate compelling resilience, according to Carlos Hardenberg of MCP Emerging Markets LLP. India's robust domestic consumption, projected to reach 773 million consumers by 2030 and bolstered by upcoming GST reforms, acts as a significant buffer against external shocks. Similarly, Brazil's diversified trade links, with only 12% of exports to the US and deepening ties within BRICS, limit tariff impact, evident in the real's 10% gain and BOVESPA's 14% rise this year, underscoring the importance of focusing on structural strengths like internal demand and trade diversification.

Analysis

Despite escalating U.S. tariffs, select emerging markets are demonstrating notable resilience, driven by strong domestic fundamentals and trade diversification. According to analysis from MCP Emerging Markets LLP, India exemplifies an economy insulated by robust internal demand, with private consumption valued at $2.1 trillion in 2023 and a consumer base projected to grow from 529 million in 2024 to 773 million by 2030. This domestic strength is evidenced by a 35% annual growth in car sales since 2019 and a 50% surge in ultra-luxury home sales in 2023, with further upside expected from the "next generation GST reforms" slated for October 2025. Similarly, Brazil showcases resilience through diversified trade, as exports to the U.S. constitute only 12% of its total. The market has reacted positively to this limited exposure, with the Brazilian real appreciating 10% against the dollar and the BOVESPA index climbing 14% this year. This is attributed to deepening trade ties within the BRICS bloc, repeating a pattern seen in 2018 where China increased soybean imports from Brazil in response to U.S. trade actions. The broader trend is supported by growing intra-ASEAN commerce, which now accounts for 21.5% of the region's total trade, underscoring a structural shift where internal demand and non-U.S. trade links are becoming primary drivers of economic stability in these markets.

Key Decisions for Investors

• Investors should re-evaluate emerging market allocations, prioritizing economies with large, growing domestic consumer markets and diversified trade relationships over those heavily reliant on exports to the U.S.
• Consider overweighting exposure to Indian consumption-driven sectors like autos, cement, and apparel ahead of the proposed GST reforms in October 2025, which are expected to simplify the tax regime and boost spending.
• While Brazil's market has shown strength, with a 14% YTD gain in the BOVESPA, positions should be monitored by tracking the country's trade volumes with BRICS partners, as this diversification is the key thesis underpinning its resilience to U.S. tariffs.