Introduction
On June 28, 2025, emerging markets surged across equities, currencies, and bonds as the U.S. dollar weakened further and expectations of global monetary easing strengthened. The MSCI Emerging Markets Index jumped 1.5% to close at 1,050.82—its highest level since November 2021—driven by capital inflows, softening U.S. Treasury yields, and renewed risk appetite.
Key tailwinds included: dovish signals from the U.S. Federal Reserve, a retreat in geopolitical tensions, stronger-than-expected growth data from Southeast Asia, and falling inflation prints across Latin America and Eastern Europe.
This article explores the market drivers behind the EM rally, analyzes flows across asset classes, and highlights implications for global investors positioning for the second half of 2025.
Dollar Weakness: Broad-Based Tailwind
The U.S. dollar continued its retreat on June 28:
- DXY: -0.5% to 104.60
- EUR/USD: +0.6% to 1.0790
- USD/BRL: -1.1% to 4.84
- USD/INR: -0.7% to 82.30
A weakening dollar supports EM currencies, reduces import costs, and encourages capital inflows. The dollar’s decline reflects falling U.S. bond yields and rising expectations of a September Fed rate cut.
U.S. Treasury yields dropped again:
- 10-year: -4 bps to 4.27%
- 2-year: -5 bps to 4.77%
The spread between U.S. and EM yields narrowed modestly but remained attractive for carry trades.
Equities: Regional Gains Accelerate
Emerging market stocks rallied broadly:
- MSCI EM Index: +1.5%
- MSCI Asia ex-Japan: +1.8%
- MSCI Latin America: +1.4%
- MSCI EMEA: +1.1%
Top-performing countries:
- India: +2.1% (Nifty 50 hits all-time high)
- Brazil: +1.9% (boosted by commodity exporters)
- Indonesia: +2.3% (retail and telecom surge)
Sector leadership:
- Financials: +2.2%
- Consumer Discretionary: +2.0%
- Technology: +1.7%
Foreign fund flows into EM ETFs hit their highest weekly level in 18 months:
- EEM (iShares EM ETF): +$2.6 billion
- VWO (Vanguard EM ETF): +$1.9 billion
Fixed Income: Yield Hunt Reignites
EM local currency bond markets rallied as inflation continued to cool:
- Brazil 10-year bond: Yield -11 bps to 9.27%
- India 10-year bond: Yield -7 bps to 6.89%
- South Africa 10-year bond: Yield -10 bps to 9.81%
Hard currency debt spreads over Treasuries narrowed:
- JPM EMBI Global Spread: -12 bps to 335 bps
Falling U.S. yields and stable commodity prices create favorable conditions for EM debt performance.
Currencies: Broad-Based EMFX Strength
- Mexican Peso (MXN): +1.0% to 16.45/USD
- Thai Baht (THB): +0.9% to 34.1/USD
- South African Rand (ZAR): +1.3% to 17.8/USD
The combination of dollar softness and improving risk sentiment boosted EM currencies. Central banks in Brazil, Mexico, and India reiterated data-dependent easing paths, anchoring FX expectations.
Commodities: Supportive for EM Exporters
- Brent Crude: +0.4% to $89.75/barrel
- Copper: +1.0% to $10,110/ton
- Iron Ore (Dalian): +1.5% to 881 yuan/ton
- Gold: +0.3% to $2,330/oz
Commodity-linked EMs (Chile, Peru, South Africa) benefited from renewed demand for industrial metals, tied to improving Chinese and Indian manufacturing indicators.
Central Bank Dynamics: Divergence Aids EM
Major central banks remain cautious:
- Federal Reserve: Signaled September cut likely
- ECB: On track for two more cuts in 2025
- BoE: Dovish pivot amid soft UK labor data
EM central banks are now balancing local inflation improvements with external capital flows. Colombia and South Korea are expected to cut in Q3, while India and Mexico are expected to hold through September.
Fund Flows and Positioning
- Emerging Market Bond Funds: +$1.7 billion
- EM Equity Funds: +$3.9 billion
- EM Currency Futures: Net long positions rose 8%
Institutional investors rotated into higher-beta EM exposures, while sovereign wealth funds added to local-currency bond holdings in Brazil and Indonesia.
Risks and Constraints
Despite optimism, several risks remain:
- China property sector fragility
- U.S. election-year trade rhetoric
- Commodity price volatility
Analysts warn that EM performance is highly sensitive to global liquidity and the direction of the U.S. dollar. A surprise spike in core PCE or hawkish Fed turn could unwind gains.
Conclusion
June 28, 2025, marked a breakout moment for emerging markets, fueled by dollar weakness, easing rate expectations, and favorable macro data across Asia and Latin America. The rally was broad-based and supported by improved fundamentals, cyclical momentum, and capital inflows.
Key investor takeaways:
- EM assets now benefit from reduced global tightening pressure
- Currency and equity appreciation supported by macro alignment
- Selective exposure to domestic-demand-driven EMs is key
As the second half of 2025 approaches, EM markets are well-positioned—but investors must remain alert to global inflation surprises and policy pivots. For now, the path forward appears constructive, with EMs finally catching the tailwinds of a synchronizing global economy.
