Emerging Markets weathered a turbulent May as global macroeconomic crosscurrents once again converged around political uncertainty, trade distortions, and diverging monetary policy expectations. While developed market headlines fixated on U.S. tariff manoeuvres and the Fed’s data-dependent stance, it was the resilience—and, in some corners, renewed confidence—within Emerging Markets that quietly reinforced investor conviction.
At the heart of the month’s volatility was a sharp escalation in trade rhetoric. U.S. President Trump’s proposal of sweeping 50% tariffs on European goods rattled global markets before being walked back into a temporary 90-day truce. This “flip-flopping” of trade policy created near-term boosts to Asian exports as companies rushed to front-load shipments, but it also laid bare the fragility of global supply chains and the ongoing politicization of trade. In Asia, Taiwan and Vietnam were among the beneficiaries of this accelerated activity, with a temporary lift in export data that, while supportive in May, may prove ephemeral in the months ahead.
More broadly, global growth indicators held up—but largely for the wrong reasons. The uptick in trade activity masked underlying softness in consumer demand and capital expenditure. Inflation provided some reprieve, easing across many regions as energy prices fell on speculation of increased OPEC+ supply. While this offered breathing room for consumers and EM central banks alike, core inflation remained sticky, keeping policymakers cautious and FX markets choppy.
Still, the narrative in Emerging Markets was increasingly one of cautious optimism. Asia led the way, with signs of domestic resilience cutting through the noise. In China, tentative signs of a bottoming-out gained credibility, as policy efforts to revive confidence began to bear fruit. Economic surprise indices for EM turned increasingly positive, especially in China, India, and Southeast Asia. India’s retail sector remained buoyant, and a surge in block trades—$5.5 billion in May alone—signalled resurgent investor participation.
The divergence in regional sentiment grew more visible. South Korea’s export recovery and India’s strong consumer backdrop painted a more constructive outlook for EM Asia, even as currency volatility and a still-unsettled U.S. dollar trajectory tempered capital flows. Meanwhile, Latin America remained stable. Brazil, for instance, delivered a flat equity return in May but maintained impressive YTD performance nearing 20%. Across the region, softer inflation prints and relatively high real rates supported local bond markets and currencies, giving investors a cushion against global rate and FX volatility.
Sector leadership globally, while headline-driven by the U.S., echoed into Emerging Markets. The IT sector, bolstered by strong AI-related earnings from global tech bellwethers like NVIDIA, lifted sentiment across EM tech exporters. Financials, particularly banks, benefitted from improving liquidity conditions and steepening yield curves, with this spillover also visible in EM bank stocks.
Attribution Analysis – May 2025
The Milltrust GEMS Emerging Markets portfolio delivered another strong month in May, returning +6.5%, driven by high-conviction allocations to Asia and targeted stock selection in key cyclical sectors. The portfolio’s performance was broad-based, but three markets—South Korea, Taiwan, and Brazil—were the clear standouts, contributing over 4.9% of total return combined. The strategy benefited from a confluence of tailwinds: strong earnings momentum in tech, improving investor sentiment in select consumer sectors, and continued resilience in EM industrials and exporters.
South Korea: Industrial and Tech Firepower
South Korea was the top contributor by a wide margin, adding +2.3% to portfolio return. This was largely driven by outstanding performance in industrials and semiconductors, where several holdings benefited from robust global demand and positioning around AI-related infrastructure. Standouts included Doosan Enerbility (+43.9%), LIG Nex1 (+38.2%), and HD Hyundai Electric (+27.3%), all capitalizing on Korea’s push into clean energy and defence. In tech, SK Hynix (+19.2%) and Park Systems (+24.1%) led gains, as investors repositioned around memory and testing equipment as AI tailwinds continue to lift the sector. The breadth and scale of these gains reflect the strategic overweight to Korea’s innovation complex and underscore its role as the portfolio’s highest-conviction region.
Taiwan: Silicon Strength and Supply Chain Leverage
Taiwan delivered a powerful +1.9% contribution, led by core positions in TSMC (+13.9%), Elite Material (+44.1%), Gigabyte (+29.2%), and Tripod Technology (+24.8%). Taiwan remains central to the global semiconductor and electronics supply chain, and the portfolio is positioned to capture this with a strong tilt toward mid-cap component makers and packaging specialists. Gains were widespread across the tech stack—from boards and testing equipment to systems integrators—affirming our thesis that EM Asia is where AI infrastructure is being physically built.
Brazil: Quietly Compounding
In Latin America, Brazil made a meaningful +0.7% contribution, driven by a mix of consumer, staples, and logistics. Cogna Educação (+13.7%), a long-standing position in the education space, bounced back strongly on improving enrolment data. Sendas Distribuidora (+20.6%), a staple retail name, continued to outperform as food inflation eased and wage growth supported consumption. Elsewhere, Valid Soluções (+7.6%) and Log-In Logística (+13.1%) delivered solid gains in the industrials segment, providing exposure to domestic infrastructure and mobility. The broader Brazil allocation continues to serve as a source of differentiated alpha, particularly in a market that remains under-owned and supported by stable policy and benign inflation.
China: Mixed Signals, Selective Wins
China’s performance was positive but uneven, contributing +0.8% overall. Strength came from Newborn Town (+19.1%), a small-cap digital marketing platform, and Bosideng (+8.2%), a domestic apparel brand that continued to rebound on improving retail activity. However, the portfolio was also dragged by names such as YaDea (-15.5%), BetterLife (-29.4%), and Haidilao (-12.6%), highlighting the ongoing dispersion within Chinese consumer and service sectors. Encouragingly, our technology and automation exposure—via names like Inspur Digital (+11.7%) and Midea Group (+10.8%)—remains a bright spot. The net effect underscores the importance of stock selection in a market undergoing structural transition and uneven recovery.
As we enter the second half of the year, Emerging Markets appear relatively well-positioned. Inflation pressures are easing across many economies, policy flexibility remains greater than in the developed world, and investor positioning is still light. Meanwhile, global investment narratives—AI buildout, clean energy, defence modernisation, and digital infrastructure—are increasingly rooted in EM supply chains and innovation hubs.
by Eric Anderson, Head of Global Wealth Solutions
