US Fed’s shadow over emerging markets lifts

Binaya Dahal

Journalist

5 February 2026

With the US Federal Reserve (US Fed) bringing rates down and the dollar coming off its peak, emerging markets (EM) have entered a phase where internal policy choices are set to matter more for growth than shifts in US monetary policy, according to asset manager Schroders Australia.

Head of Multi-Asset at Schroders, Sebastian Mullins said the constraint which forced central banks across emerging markets to prioritise currency stability over domestic growth has now eased.

“Emerging market policymakers had little room to move, [but now] we’re moving away from a period where emerging markets moved almost entirely in step with the Fed or China,” he said.

“That influence is fading, and we’re starting to see which economies can generate growth on their own terms.”

Furthermore, Mullins said countries that used the last cycle to strengthen policy credibility and control inflation were now better placed to benefit.

“Valuations are low relative to history and other emerging regions, corporate earnings are improving, and in countries such as Chile there are signs of a shift toward more market-friendly policies, which could support investment and growth,” he said.

While Chinese technology stocks have rallied, Mullins sees this as a short-term adjustment rather than confirmation of a sustained recovery.

“The recent engagement between policymakers and the tech sector sent a signal, and parts of the market reacted,” he said.

“But a broader re-rating of Chinese equities will require stronger fiscal support aimed at the domestic consumer.”

While Schroders remains positive on global equities into 2026, Mullins said he expected leadership to broaden.

“As conditions shift, emerging markets have more freedom to act. For investors, this is one of the more attractive opportunities the asset class has offered in recent years,” he said.

“In 2026, we may be paying the same attention to the economic decisions made in Sao Paulo and Mexico City as the next move in Washington.”