Why are emerging markets less risky today?

Emerging markets have historically been riskier than developed markets like the UK or US – vulnerable to political shocks, currency swings, and economic instability. But that view is outdated!

Today, many of these economies are demonstrating greater financial discipline, market maturity, and corporate strength than their developed peers – and growing faster. This shift is prompting investors to embrace the exciting growth opportunities they offer.

Emerging markets today carry significantly less debt. Developed economies, by comparison, are grappling with extreme levels of debt – around 1.5 times more government debt and twice the household debt. The UK, for example, is projected to reach government debt levels of 104% of GDP in 2025¹ – a stark illustration of how stretched many developed economies have become.
 

By comparison, emerging economies are showing far greater fiscal discipline. They have consistently strengthened public finances, improved corporate governance, and avoided the imbalances that have caused problems in the past.

For investors, this matters. Lower debt gives policymakers more flexibility – whether to respond to shocks, invest in growth, or avoid the fiscal pressures facing many developed markets. That flexibility reduces risk and provides a stronger foundation for future growth – something many developed economies can no longer offer.

Another outdated misconception is that emerging markets are significantly more volatile than developed markets. But the facts tell a different story. Over the past 15 years or so, emerging market volatility has steadily declined, and in recent years it has even been lower than developed markets.
 

This shift reflects deep structural improvements. To attract foreign investment, many emerging markets implemented a host of fiscally prudent macroeconomic reforms, improved market infrastructure, and strengthened regulatory frameworks. As a result, liquidity has broadened, and investor participation has widened and deepened.

At the company level, governance standards have improved dramatically. Many emerging market companies now meet world-class regulatory standards, show operational excellence and are global leaders in their industries. This brings greater earnings stability, transparency, and resilience – meaning shareholders have better visibility and the comfort of adherence to global best practices.

In short, these markets are not just less volatile – they’re also better built. It’s a role reversal: emerging economies are showing the kind of fiscal discipline that used to be the hallmark of developed markets.

Emerging markets are outperforming their developed peers by following more orthodox, prudent economic policies and avoiding the kind of debt-fuelled growth that’s weighing on many advanced economies. Combined with rising standards of corporate governance and transparency, investors are increasingly recognising them as structurally sound and strategically important.

For investors looking to access this opportunity, Templeton Emerging Markets Investment Trust (TEMIT) offers a portfolio focused on quality, resilience, and long-term growth. With a 35-year track record and over £2 billion in assets, TEMIT is built to harness the strength and stability that now define many emerging economies.

Emerging markets have changed! Representing 40% of the global economy, is it time to increase your allocation to growth?