The World’s Most Mispriced Asset: Emerging Market Trust

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• Emerging markets are quietly rewriting their story from crisis-prone economies to some of the most fiscally disciplined and resilient players in global finance.
• Behind the headlines, many developing economies are running leaner, steadier, and more disciplined than the so-called “safe” ones.
• As parts of the developed world stumble into the traps they once warned others about, emerging markets may now hold the world’s most overlooked opportunity.

The story of emerging markets has been one of transformation. From the debt crises of the 1980s to the booms and busts of the 1990s, investors learned to associate the term “EM” with danger. But as Nicolás Dujovne reminds us, that image is outdated.

Dujovne, once Argentina’s Finance Minister and now CIO of Tenac Asset Management, has lived through the volatility most investors only read about. His insight is simple: emerging markets are stronger, not weaker, than most people think.

The Trap of Fiscal Politics

Argentina’s experience offers a window into why stability is so hard to achieve. In about a decade, government spending jumped from roughly 25 percent to 42 percent of GDP. The math was unsustainable. When reserves ran out, debt and money printing filled the gap, and inflation soared.

The technical solution to cut spending, raise efficiency, and stabilize the currency was obvious, although the political solution was not. Every reform carried short-term pain. Utility prices rose, subsidies fell, and voters revolted before the gains appeared. The lesson was clear: fiscal reform without political consensus is a temporary victory.

A Revolution Beyond Argentina

While Argentina struggled, much of the emerging world evolved. Inflation targeting, flexible exchange rates, and credible central banks replaced the rigid pegs and emergency bailouts of past decades.

In the 1980s, many EM countries borrowed in dollars. A single currency devaluation could double their debt overnight. Now, the majority borrow in local currencies. In tandem with healthier fiscal positions, that shift has reduced the boom-bust cycle that used to define the space.

The median debt-to-GDP ratio in EM is roughly 60 percent, compared with more than 100 percent in advanced economies. In other words, the “unstable” world is now running leaner balance sheets than the “safe” one.

The Politics of Growth

What makes emerging markets fascinating is that economics alone never tells the whole story. Politics does. Fiscal discipline requires consensus. Central bank independence requires restraint. And investors, increasingly, are learning that a key risk is not volatility, but the loss of credibility.

Countries such as Brazil, Mexico, and Peru have quietly built institutional strength. Brazil formalized its central bank’s independence, while Mexico’s has survived a populist shift in leadership. Peru weathered political upheaval with minimal economic impact.

For investors who grew up watching crises, this looks almost unrecognizable.

The U.S. Mirror

Meanwhile, the developed world is showing symptoms that once belonged to emerging markets with expanding deficits, political paralysis and monetary policy under pressure.

Although the U.S. isn’t in crisis, fiscal dominance is a future risk if spending remains unchecked. Inflationary surges fade, but debt piles persist. Markets are already adjusting to this new reality with higher real yields and steeper curves. The paradox is striking as some emerging markets mature, parts of the developed world are regressing.

Geopolitics and the Flow of Capital

Globalization once lifted emerging markets through trade and investment. Now, de-globalization and friend-shoring have changed the map. Political alliances guide capital flow (not only economic fundamentals).

That adds a new layer of complication because investors must weigh not only growth potential, but also how global politics reshapes risk. But even in this environment, the demographic and productivity advantages of EM remain powerful.

Younger populations, urbanization, and rising consumption will continue to drive long-term demand. As developed nations continue to age and slow, that growth differential matters.

Opportunities in EM Equities

For all the talk of risk, there’s a strong case to be made that emerging market equities remain among the most undervalued assets in the world. The gap between EM and U.S. equities is wider than in any other major asset class. Commodities and trade have revived profitability across EM economies, yet investor attention remains focused elsewhere.

The best opportunities tend to lie in countries doing the right things before the market believes them. When fundamentals improve faster than perception, that’s where the real returns are made.

What Emerging Markets Can Teach us About Patience

Emerging markets remind us that cycles of instability usually precede resilience. Reform rarely pays off immediately. It takes time for credibility to compound, and investors who can see beyond the short-term discomfort are typically rewarded in the long run.

The same could be said for the global economy itself. In a world shifting from old models of globalization toward new, politically charged realities, patience is once again the rarest asset.

Emerging markets are no longer the story of perpetual crisis. They are the story of rebuilding trust: one policy, one institution, one generation at a time. For investors, that is not merely a change in narrative. It is a change in opportunity. 

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This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up for our Newsletter or subscribe on your preferred podcast platform so that you don't miss out on future episodes.