Investors are attracted to emerging market assets as they offer the potential for high returns.
A recent Bank of America Securities analysis shows that these assets will deliver “several percentages” of returns by 2025. This is primarily due to the weakening of the US dollar.
The forecast is based on the growing uncertainty in US economic conditions and global currency markets.
The dollar index is down nearly 9% in this year. Emerging economies will benefit from the favorable market conditions and could attract substantial capital flows.
What is causing the US Dollar to weaken?
The decline of the US dollar in 2025 can be attributed to a number of factors. Dollar index has dropped nearly 9% in the past year, which is a measure of currency strength relative to a basket containing major currencies.
The weakening of the US dollar is due to uncertainty surrounding US policies, possible economic challenges from tariffs and softening conditions on the labor market.
Recent data also suggests that the Federal Reserve’s monetary policies, coupled with fiscal concerns, and an ever-steepening yield curve have diminished the safe-haven status of the dollar in the eyes global investors.
Bank of America has an optimistic outlook
Bank of America Securities has expressed its optimism regarding the future of emerging markets assets by 2025, based on insights provided by David Hauner.
BofA believes that the continuing decline in the US dollar is a catalyst to returns on these markets.
Hauner stated that the emerging markets could return “several percentages” in this year. This projection is consistent with recent movements on the market.
Early in June 2025, emerging market assets have been rising for several sessions. South Korean assets are leading this rally after a presidential elections.
Specific gains and regional bright spots
Several regions and nations within the emerging markets sphere have already shown notable strength.
MSCI Emerging Markets index outperformed S&P 500 in 2014 by over 7%.
South Korea’s assets, for example, have seen their value soar in the last few days due to political changes and strong economic indicators.
Average return on local sovereign debt was 5.7% per year. Brazil was top with a return of 20%, fueled by carry trading.
Carry trades are used by investors to profit from interest rate differences between currencies or other assets.
In 2025, Latin American markets are expected to be the biggest winners, as their year-to date returns reflect renewed investor interest.
The decline of the dollar has led to an improved trade environment, and a more favorable exchange rate.
Emerging market currencies also gain from global shifts.
The correlation between higher US Term Premiums and a lower dollar is becoming more prominent as the US yield curvature steepens due to fiscal concerns. This provides a positive tailwind for currencies.
The interconnectedness between global financial markets is a trend that highlights the effects of US policies in emerging economies.
Investors and the global market: Implications
Investors face both challenges and opportunities when it comes to the gains that emerging markets assets can bring.
The weakening US Dollar and BofA’s optimistic forecast offers a chance for portfolio diversification, and therefore higher returns.
Emerging markets are still susceptible to sudden changes in policy, geopolitical tensions or economic shocks.
It is recommended that investors approach the markets using a well-balanced strategy. They should also use risk management and research tools.
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