Currency matters in emerging markets investing

At Tricio we like to look at charts in order to gauge market sentiment and investor action.

We looked at emerging market (EM) equity exposure in a previous blog in May 2025. We suggested that the increase in the number of lower cost ETFs provided investors with the opportunity to diversify their EM exposure, given that most indices (and benchmarks) would have China, Taiwan, India and South Korea as some of their top holdings. Some of these markets may not be considered EM by some investors. We did like Latin America exposure on the view that stocks would rise, and that key local currencies would rally further vs. the USD. The latter point is important as many EM funds are USD (or EUR or GBP etc.) based, and if local currencies rally against the hard currency this gives the holding an extra kick. It is important for investors to know where their returns are coming from.

An example of this is that a few years ago a member of a UK based investment committee reported to their board that their EM holdings were doing very well and liked the fact that EM equity markets were holding up. This was in 2022, when EM equities had been under pressure for much of the year. However, the USD was surging vs. the GBP and their EM fund holdings were USD based, hence the positive return. An easy mistake to make, and it is always best practice to dig a bit into what is driving your performance! 

We looked at the iShares MSCI EM Latin America UCITS ETF (weekly chart below with 13 and 50-week moving averages) as a proxy for a key EM sector in May. The chart below shows the USD ETF (distributing) which has a total NAV return of 41.5% year-to-date, so it has added another 20% or so since that blog. As we have pointed out in previous blogs and weekly, monthly and focus reports, a lot of the gains are making up for the big losses seen in 2024. The ETF is coming to a crunch test though as the peak area from 2023 (just above $18) is not that far away anymore. The red line shows a potential resistance area closer to current levels, while the blue line shows a potential break already in place. 

Where are the gains coming from? Brazil and Mexico make up over 75% of the ETF holdings. The charts below show the Mexican equity index, MXN vs. the USD and the Mexican index in USD terms as well as the same for the Brazilian markets. In USD terms both main bourses seem to have room to rally further. We favour this scenario over the coming quarters, but will be watching the ETF to see if resistance levels can be cleared – or not.

If you have any questions on how we can help professional investors and wealth managers with portfolio and investment risk and ideas, please contact us at info@tricio-advisors.com

Gerry Celaya

Chief Strategist