BofA Analyst Predicts Emerging Market Rally Amidst Dollar Weakness

Bank of America (BofA) analysts are feeling bullish on emerging market (EM) assets, thanks to the ongoing slide of the U.S. dollar. With global economic dynamics shifting and policies evolving, conditions are looking favorable for emerging market (EM) currencies, stocks, and bonds.

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A Falling Dollar Fuels EM Hopes

The U.S. dollar has taken a real hit in 2025. The U.S. Dollar Index (DXY) has dropped more than 8%, hitting its lowest level in three years. What's behind it? A mix of trade tensions under the Trump administration, concerns about a recession, and dwindling demand for U.S. assets globally.

That sentiment is echoed in BofA's April 2025 Global Fund Manager Survey. A striking 61% of fund managers expect the dollar to keep weakening over the next 12 months, the most bearish outlook since 2006.

Why Emerging Markets Are Looking Strong

David Hauner, who leads BofA's Emerging Markets Fixed Income Strategy, says the current global setup is favourable for emerging markets. A softer dollar, paired with easing inflation, is setting the stage for more money to flow into emerging market (EM) assets.

He's especially optimistic about India, Taiwan, and South Korea. India stands out for its solid growth and supportive central bank actions. A 50-basis-point interest rate cut from the Reserve Bank of India later this year could provide an additional boost to the rupee and local bonds.

Where the Investment Opportunities Are

Right now, emerging markets are offering several paths for investors:

Local Currency Bonds: Countries such as India, Indonesia, and Brazil are offering high yields, along with the opportunity for their currencies to appreciate. ETFs like IEML and EMLC give you exposure here.

Dollar-Denominated Bonds: Do you prefer sticking with the dollar? You can still achieve higher yields than those found in most developed markets. Look into EMB and VWOB for that.

Equities: Emerging market stocks are on a roll. The MSCI EM ex-China index has increased by 20% over the past month. That surge is tied to the weaker dollar, steadying U.S. Treasury yields, and a tentative rebound in China's economy.

Don't Forget the Risks

Even with all the good news, BofA reminds investors to remain vigilant. Risks, such as a sudden return of trade tensions or a rebound in the U.S. dollar, could shake things up. A well-balanced and informed investment strategy remains key.

Bottom Line

With the dollar on the back foot and global conditions tilting in their favour, emerging markets are catching investors' attention. If you're seeking higher returns and greater diversification, now may be a good time to examine emerging market EM) assets more closely. Just make sure you're ready for the bumps along the way.