Emerging markets (EM) have the potential for growth as the US presidential election approaches and the US economy slows down, according to UBS.

UBS predicts that the US exceptionalism of the past three years will come to an end, with nominal GDP growth expected to be below 4% next year. This creates a lower benchmark for EM. Despite a slowdown in EM growth, the growth differentials compared to the US are projected to be at the 90th percentile of their post-global financial crisis distribution.

UBS analysts point out that the upcoming election could result in a divided government scenario, which would be beneficial for EM in 2025, especially if it leads to no additional tariffs. Factors such as a weak US fiscal outlook and reduced tariff concerns could attract portfolio flows into EM. Projections suggest that the MSCI EM index could reach 1255 by the end of 2025, with a total return of approximately 10%. However, UBS also identifies four challenges that could affect robust EM returns, including weaker global trade dynamics, low EM risk premia, stabilization of US corporate bond yields, and potential risks from higher tariffs on China.