The Emerging Markets Rout Continues

Emerging markets (EM) have a special talent: they can be up, down, and somehow still “complicated” all at the same time.
One week, investors are piling into EM ETFs like they’re buying concert tickets. The next week, a single headline turns an entire
country’s market into a slip-and-slide. If you’re wondering how the “rout” can continue while some benchmarks look perfectly fine,
congratulationsyou’ve just passed the entrance exam for Emerging Markets 101.

The truth is that “emerging markets” is not one trade. It’s a crowded food court of very different economies, currencies, politics,
and corporate culturesserved under one label because the investing world loves tidy categories almost as much as it loves drama.
So when people say the rout continues, what they often mean is this: volatility remains sticky, drawdowns keep popping up in pockets,
and the gap between winners and losers is wide enough to park a bus in.

Why the Rout “Continues” Even When the Index Doesn’t Cooperate

If you only look at a broad EM index, you’ll miss the plot. Under the hood, EM performance is often a tug-of-war between:
(1) global money conditions (U.S. rates, the dollar, risk appetite), and (2) local stories (policy credibility, debt, elections,
inflation, trade exposure, market structure).

That’s how you can see strong inflows into emerging market ETFs while specific countries are getting absolutely bonked.
Think of it as a neighborhood where some houses are selling above askingwhile one house down the street is on fire because the
electrical wiring was “innovatively installed” by someone’s cousin.

1) The Dollar, U.S. Rates, and the “Global Financial Mood Ring”

Emerging markets tend to thrive when the U.S. dollar is weaker and global borrowing costs are easingbecause it reduces pressure on
dollar-denominated debt, supports commodity pricing in local terms, and makes risk assets more attractive. Flip those conditions and
EM can quickly feel like a restaurant bill you forgot to split: suddenly everyone is scrambling for cash.

Even in periods when the dollar trends softer, EM can still experience sharp risk-off episodes (and fast reversals) when markets
reprice the path of U.S. policy, inflation expectations, or geopolitical risk. That stop-start behavior is one reason the “rout”
feels ongoing to investors living through iteven if the longer-term chart looks calmer.

2) “EM Is Cheap” (Famous Last Words) vs. “EM Is Fragile” (Also Famous)

A classic EM setup goes like this: valuations look cheaper than developed markets, investors notice, and money flows inoften through
ETFs for convenience. But EM also has less margin for error because it can be more sensitive to external financing, currency swings,
and policy credibility. When sentiment turns, selling can be fast, crowded, and occasionally ruthless.

And yes, the market can do both at once: bargain-hunting flows on the surface, stress fractures underneath.

A Real-Time Example of How “Rout” Can Be Country-Specific

A single market can melt down for reasons that have little to do with “emerging markets” as a category. Index-provider decisions,
market transparency concerns, liquidity rules, and governance worries can matter enormously because a meaningful share of global EM
ownership is benchmark-driven. If a country faces a downgrade risk (for example, from emerging to frontier), passive and
quasi-passive money may be forced to sell. That’s not “investors changing their minds”it’s the investing equivalent of a fire drill.

The takeaway: in EM, market structure can be as important as macroeconomics. You’re not only underwriting growth and inflationyou’re
underwriting trading plumbing, regulation, and trust.

The Big Forces Behind EM Volatility Right Now

1) External Debt, Refinancing, and the Cost of Being Boring

When global conditions tighten, countries with high external borrowing needsor a lot of debt tied to foreign currencyare more
exposed. Refinancing risk rises, currencies wobble, and local rates may need to stay higher to defend stability. That can hit both
government bonds and domestic demand.

Meanwhile, the “boring” emerging marketsthe ones with credible central banks, manageable debt paths, and predictable rulesoften end
up being the surprising winners. In EM, boring is a competitive advantage.

2) Currency Volatility: The Plot Twist You Didn’t Ask For

EM returns for U.S.-based investors don’t come only from stocks or bonds; they also come from currencies. A strong local market can be
erased by a weakening currency. Conversely, a decent local return can look amazing once a strengthening currency converts back into
dollars.

That’s why EM investors obsess over current accounts, reserve buffers, terms of trade, and central-bank credibility. In developed
markets, currency tends to be background music. In EM, currency is the lead singerand sometimes the lead singer jumps into the crowd.

3) Trade and Industrial Policy: Winners, Losers, and the “Tariff Weather”

EM countries linked to global manufacturing, semiconductors, and AI-related supply chains may see stronger export momentum than
commodity-dependent or trade-sensitive economies facing weaker demand. But policy uncertaintyespecially around tariffs and strategic
industriescan change the forecast quickly.

In other words, some EMs are selling the picks and shovels of modern tech. Others are selling “stuff people buy when they feel rich.”
Those are not the same business cycles.

4) ETF Plumbing and the Speed of Modern Flows

ETFs make it easier to buy (and sell) entire regions in one click. That’s convenientuntil it isn’t. In volatile periods, ETFs can
amplify the global financial cycle in emerging markets by making cross-border flows faster and more synchronized.

Translation: when risk appetite is on, EM can levitate. When risk appetite is off, EM can drop like your phone the first time you try
to take a “quick” mirror selfie.

So… Is This Actually a Rout, or Just EM Being EM?

The most honest answer is: it depends on where you’re standing.
Broad EM benchmarks can be supported by a handful of large markets and mega-cap companies, while plenty of countries and sectors are
still experiencing drawdowns, liquidity shocks, or currency stress. Add political headlines, governance questions, and occasional
“surprise” regulations, and the lived experience of EM investing can feel like a rout even in a flat or mildly positive tape.

That’s not a bug. That’s the feature you’re being compensated forassuming you manage the risks instead of just collecting flags on a
map.

What Smart Investors Watch When EM Gets Messy

1) The Dollar and Real Rates

EM often behaves better when the dollar is softer and real rates aren’t spiking. Watch how markets price the path of U.S. policy, not
just the latest headline. A “pause” can matter as much as a cut if it changes expectations.

2) Current Accounts, Reserves, and “Funding Fragility”

Countries that need constant foreign capital to fund imports and debt rollovers are more vulnerable. Countries with healthier
external balances and credible policy frameworks tend to absorb shocks better.

3) Political Credibility and Central Bank Independence

Markets can tolerate bad news. What they hate is confusion. If investors think fiscal policy is drifting, rules are changing, or a
central bank is being leaned on, risk premiums can jump quicklyand they don’t always come back down politely.

4) Index and Market-Access Risk

EM is unusually sensitive to index inclusion rules, free-float requirements, settlement systems, and transparency.
These “unsexy” details can become the whole story overnight.

How to Think About Positioning Without Pretending You Can Predict Headlines

Focus on Quality Inside EM

“Quality” in emerging markets tends to mean: solid balance sheets, pricing power, transparent governance, and revenues that don’t rely
on one commodity price staying perfect forever. In sovereign space, it means sustainable debt dynamics and credible institutions.

Respect Currency Risk (Don’t Ignore It; Don’t Obsess Either)

Some investors hedge currency; others embrace it. Either way, treat FX as a deliberate choice, not a hidden side bet.
If you can’t explain how currency moves affect your returns, you’re not investingyou’re freelancing.

Use Staging and Diversification

EM is rarely a “buy once and forget” asset class. Staged entry (dollar-cost averaging), diversification across regions, and avoiding
single-country concentration can reduce the odds of getting hit by a one-off shock that has nothing to do with your original thesis.

Bottom Line

The emerging markets rout “continues” not because every EM asset is collapsing at once, but because the mix of fast global flows,
sensitive currencies, and local policy surprises keeps producing fresh pockets of pain. At the same time, valuations, selective
growth stories, and shifting global conditions can attract steady inflowsespecially when investors are looking for diversification
away from expensive developed markets.

If you want EM to feel less like a roller coaster, don’t demand that it behave like a developed market. Treat it like what it is:
a set of economies at different stages of maturity, priced with a risk premium for a reason, and periodically re-rated when the world
changes its mind about dollars, debt, and drama.

Experiences From the EM Trenches (Extra )

Because I can’t claim personal war stories (and because your compliance team would prefer I not “remember” a 2008 trade I didn’t
actually place), here are the kinds of real experiences investors and operators commonly report when living with emerging markets
exposurewhether through EM ETFs, local bonds, or doing business across borders.

1) The “I bought the index and still got surprised” moment.
Many investors start with a broad EM ETF expecting diversification, then learn that concentration works differently in practice.
A handful of large countries and sectors can drive a big chunk of performance. When one country hits a policy snagor one sector gets
repricedyour “diversified” position can feel oddly specific. The lesson people take away is to look inside the fund: country weights,
sector exposure, and top holdings matter more in EM than most newcomers expect.

2) Currency teaches humility faster than any spreadsheet.
A common experience is celebrating a strong local-market return and then watching FX wipe out the gain when converted back into
dollars. The reverse also happens: local returns look mediocre, but a strengthening currency turns them into a pleasant surprise.
Investors who stick with EM tend to stop treating FX as noise and start treating it like a risk factor they can plan aroundby sizing
positions conservatively, diversifying currency exposure, or using hedges when appropriate.

3) Liquidity is a fair-weather friend.
In calm periods, spreads look fine, trading feels easy, and everyone’s a genius. In stress periods, liquidity can vanish quickly,
especially in smaller markets. People who’ve been through a few cycles learn to avoid overconcentration in the least liquid corners
unless they’re being paid well for it, and they keep a mental (or literal) plan for “what happens if I need to exit fast.”

4) Policy credibility isn’t academicit’s pricing.
Investors often describe an “aha” moment when they realize that politics and institutions are not background commentary in EM; they’re
part of the valuation model. A credible central bank can calm a currency storm. A messy fiscal narrative can raise borrowing costs
instantly. Folks who do well over time tend to favor countries and companies with predictable ruleseven if the short-term upside
looks less exciting.

5) The best EM decisions feel boring at the time.
Some of the most consistent “good” experiences come from unglamorous habits: staging entries, rebalancing instead of chasing,
diversifying across regions, and avoiding the temptation to turn one headline into a life philosophy. EM rewards patience in a way
that’s almost rudebecause it often punishes impatience quickly and publicly.

6) EM can improve a portfolio… if you respect what you bought.
Investors who keep EM as a measured allocation (rather than an all-in bet) often describe it as a useful diversifier over timean
exposure to different growth drivers, demographics, and cycles. But they also describe it as emotionally demanding, because the path
is jagged. The “experience” is learning to separate temporary volatility from permanent impairmentand to admit, occasionally, that
some drawdowns are not buying opportunities; they’re warning labels.