Emerging market assets are capturing the attention of investors as potential opportunities for significant returns.

According to a recent analysis by Bank of America (BofA) Securities, these assets are poised to deliver “several percent” in returns in 2025, driven primarily by a weakening US dollar.

This forecast comes amid growing economic uncertainties in the US and shifting dynamics in global currency markets.

As the dollar index has already declined nearly 9% this year, emerging economies stand to benefit from favorable conditions, potentially attracting substantial capital inflows.

Why is the US dollar weakening?

The US dollar’s decline in 2025 has been attributed to several factors. The dollar index, which measures the currency’s strength against a basket of major global currencies, has fallen nearly 9% year-to-date.

This weakening is linked to uncertainties surrounding US policymaking, potential economic headwinds from tariffs, and softening labor market conditions.

Furthermore, recent data suggests that the Federal Reserve’s monetary policy stance, combined with fiscal concerns and a steepening yield curve, has diminished the dollar’s safe-haven status in the eyes of global investors.

Bank of America’s optimistic outlook

Bank of America Securities, through insights shared by strategist David Hauner, has expressed optimism about the trajectory of emerging market assets in 2025.

BofA anticipates that the continued decline of the US dollar will act as a catalyst for returns in these markets.

Specifically, Hauner noted that emerging market assets could deliver returns of “several percent” this year, a projection that aligns with recent market movements.

Emerging market stocks have risen for consecutive sessions in early June 2025, with South Korean assets leading the rally following a presidential election.

Regional bright spots and specific gains

Certain regions and countries within the emerging market sphere are already demonstrating notable strength.

The MSCI Emerging Market index has outperformed S&P 500 by more than 7% in the year.

South Korea, for instance, has seen its assets extend world-beating gains in recent days, fueled by political developments and robust economic indicators.

The average return from local sovereign debt is 5.7% in the year. Brazil was the top earner with a 20% return, powered by carry trades.

In a carry trade, investors seek profit from the interest rate differential between two currencies or assets.

Similarly, Latin American markets have emerged as surprising winners in 2025, with year-to-date returns reflecting renewed investor interest.

These gains are partly attributed to a favorable currency environment and improving trade dynamics resulting from the dollar’s decline.

Beyond equities, emerging market currencies are also benefiting from the shifting global landscape.

As the US yield curve steepens amid fiscal concerns, the correlation between higher US term premiums and a weaker dollar has become more pronounced, providing a tailwind for these currencies.

This trend underscores the interconnectedness of global financial markets and the cascading effects of US economic policies on emerging economies.

Implications for investors and global markets

For investors, the potential gains in emerging market assets present both opportunities and challenges.

On one hand, the weakening US dollar and BofA’s positive forecast suggest a window for portfolio diversification and higher returns.

On the other hand, emerging markets remain susceptible to volatility, whether from geopolitical tensions, sudden policy shifts, or unexpected economic downturns.

Investors are advised to approach these markets with a balanced strategy, leveraging thorough research and risk management tools.

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The UK’s Financial Conduct Authority (FCA) has proposed lifting its longstanding ban on retail investors buying exchange-traded products (ETPs) tied to cryptocurrencies.

The move comes as part of an effort to revitalize Britain’s crypto competitiveness and better align the market with the United States, where crypto ETFs have surged in popularity under the Trump administration.

If implemented, the new rules would allow retail investors access to exchange-traded notes (ETNs) backed by cryptocurrencies like Bitcoin and Ether, provided they are listed on FCA-approved exchanges.

These products have so far been restricted to professional investors despite being tradable on venues like the London Stock Exchange since last year.

US market pressure drives policy shift

The FCA’s policy rethink comes as crypto investment products have gained rapid traction in the US.

Spot Bitcoin ETFs, introduced there in early 2024, now manage over $130 billion in assets — a figure that dwarfs the combined $16 billion under management by European crypto ETPs.

That disparity has intensified pressure on UK regulators to support innovation and prevent the country from falling further behind.

Source: Bloomberg

“This consultation demonstrates our commitment to supporting the growth and competitiveness of the UK’s crypto industry,” said David Geale, the FCA’s executive director of payments and digital assets.

“We want to rebalance our approach to risk and allow people to make the choice on whether such a high-risk investment is right for them.”

The FCA’s ban on retail access to cryptoasset derivatives will remain in place.

FCA’s change in stance regarding crypto

The proposal represents a notable departure from the regulator’s past messaging.

In 2021, the FCA warned retail consumers that investing in cryptocurrencies and related products could lead to total financial loss.

“Investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money. If consumers invest in these types of product, they should be prepared to lose all their money,” the FCA had said in a dire warning.

At the time, the watchdog said such investments were too risky and not protected by the Financial Ombudsman Service or the Financial Services Compensation Scheme.

While those warnings remain valid, the FCA now appears to be signaling a shift toward giving retail investors more autonomy, albeit with full awareness of the risks.

Wider regulatory reform underway

The proposal is part of a broader effort by the UK government to craft a comprehensive regulatory regime for digital assets.

Finance Minister Rachel Reeves has said the country aims to become a “world leader in digital assets” and emphasized that regulation should support innovation rather than hinder it.

Draft legislation introduced in April outlines a framework that would bring exchanges, brokers, and crypto service providers into the regulatory fold.

The Treasury said the forthcoming rules would crack down on bad actors while offering legitimate firms a clearer path to compliance.

The regulator has outlined its crypto roadmap and recently published proposals on stablecoins as well as other aspects of the regime.

The FCA’s consultation on lifting the retail ETP ban is expected to conclude later this year, with final rules anticipated in 2025.

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The once-close alliance between Elon Musk, the billionaire entrepreneur behind Tesla and SpaceX, and President Donald Trump has unraveled into a public feud that could have major repercussions for Musk’s business empire.

As of June 2025, the fallout between the two powerful figures has escalated with threats and insults traded on social media platforms, raising questions about the potential financial and operational damage to Musk’s companies.

Elon Musk and Donald Trump’s relationship began to solidify during Trump’s campaign for the 2024 presidential election.

Musk, known for his influential presence on social media and his ownership of X (formerly Twitter), played a pivotal role in mobilizing support for Trump.

During the initial months of Trump’s presidency, Musk’s companies, particularly SpaceX, enjoyed favorable conditions.

SpaceX, a key player in the American space program with its Dragon spacecraft, continued to secure lucrative government contracts.

Tesla, Musk’s electric vehicle giant, also navigated the administration’s policies with relative ease, despite occasional tariff concerns Musk himself raised on social media in March 2025.

This period of mutual benefit painted Musk as a significant ally in Trump’s inner circle, amplifying his influence in political and economic spheres.

The Musk and Trump feud

The partnership took a sharp downturn in early June 2025, when disagreements over a major legislative proposal—referred to by Musk as the ‘Big Ugly Bill’—sparked a public spat.

The conflict centers on a spending bill that Musk criticized for massively increasing the federal budget deficit to $2.5 trillion and imposing unsustainable debt on American citizens.

Musk’s vocal opposition to the bill, expressed through posts on X, reportedly angered Trump, who retaliated by threatening to cut government contracts tied to Musk’s companies, particularly SpaceX.

In response, Musk fired back, claiming credit for Trump’s electoral success and asserting that without his support, Democrats would have controlled key branches of government.

This exchange of barbs has not only turned personal, touching on unrelated issues like the Epstein files, but also raised the stakes for Musk’s business interests.

The threat to sever federal contracts is particularly alarming for SpaceX, which relies heavily on government partnerships for its operations, including missions critical to NASA and national security.

Potential damage to Musk’s companies

The fallout could inflict substantial damage on Musk’s business empire, starting with SpaceX.

Given that SpaceX’s contracts with NASA and the Department of Defense are worth billions annually, any reduction or cancellation of these agreements could severely impact the company’s revenue and long-term projects, such as the Starship program aimed at Mars colonization.

Analysts suggest that such a loss could also dent investor confidence in SpaceX, which remains a private entity heavily tied to government funding.

Tesla, while less directly tied to government contracts, is not immune to the ripple effects.

Musk has previously highlighted the impact of tariffs on Tesla, and Trump’s proposed economic policies, including aggressive tariffs as warned by Musk on X in June 2025, could exacerbate costs for the automaker.

A potential recession, which Musk predicted could occur in the second half of 2025 due to these tariffs, would further challenge Tesla’s growth in an already competitive electric vehicle market.

Additionally, the public nature of the feud could harm Musk’s personal brand, which is closely intertwined with Tesla’s image, potentially affecting consumer trust and stock performance.

Beyond SpaceX and Tesla, other Musk ventures like Neuralink and The Boring Company could face indirect consequences.

Regulatory scrutiny, which had been eased under Trump’s earlier support, might intensify if the administration turns hostile.

This could delay innovation timelines and increase operational costs, further straining Musk’s ambitious goals across multiple industries.

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The International Monetary Fund (IMF) has issued a stark warning that the ongoing global trade war presents a more formidable challenge to emerging market central banks than the COVID-19 pandemic.

As trade tensions escalate, particularly with the imposition of historically high tariffs by the United States, emerging economies are grappling with complex economic shocks that threaten growth, inflation, and financial stability.

This warning comes at a time when many of these nations are still recovering from the lingering effects of the pandemic, making the current crisis even more perilous.

According to IMF officials, the differential impacts of trade tariffs create unique policy dilemmas for central banks in emerging markets, complicating their ability to respond effectively.

The current trade war, largely driven by U.S. policies under President Donald Trump, has seen tariffs reach levels not witnessed in a century.

In April 2025, the IMF reported that these tariffs are significantly dampening global economic growth, with forecasts for the United States slashed from 2.7% to 1.8% for the year.

The ripple effects are felt worldwide, but emerging markets—economies like India, Brazil, and Thailand—are particularly vulnerable due to their reliance on global trade and foreign investment.

Unlike the COVID-19 crisis, which prompted synchronized global monetary easing, the trade war introduces asymmetric shocks, where some countries face inflationary pressures while others grapple with deflationary risks.

Why trade war trumps COVID as a threat

During the COVID-19 pandemic, central banks in emerging markets were able to implement rapid policy responses, such as slashing interest rates and injecting liquidity into their economies.

The crisis, while severe, had a somewhat uniform impact globally, allowing for coordinated action.

In contrast, the trade war’s effects are uneven, creating a patchwork of economic challenges.

IMF First Deputy Managing Director Gita Gopinath emphasized in a recent statement that tariff shocks make policy responses tougher for emerging markets.

For instance, countries heavily reliant on exports to the U.S. or China face declining demand, while others dealing with imported inflation due to higher costs of goods struggle to balance growth and price stability.

This complexity, according to the IMF, renders the trade war a ‘greater challenge’ than the pandemic for these central banks.

Implications for emerging market central banks

The policy dilemmas facing emerging market central banks are multifaceted.

Raising interest rates to combat inflation risks stifling economic growth, particularly in nations with high levels of debt.

Conversely, lowering rates to stimulate growth could exacerbate currency depreciation and capital outflows, especially as the U.S. dollar strengthens amid trade tensions.

The IMF has warned that these central banks face ‘rising uncertainty and uneven impacts,’ making it difficult to chart a clear path forward.

Moreover, the trade war exacerbates existing vulnerabilities in emerging markets, such as elevated debt levels and tightening financial conditions.

The World Trade Organization (WTO) also cut its 2025 global merchandise trade growth forecast to a decline of 0.2% from a previously expected rise of 3.0%, signaling severe spillover effects if retaliatory tariffs intensify.

The broader global economic outlook adds another layer of concern for emerging markets.

The IMF’s latest forecasts indicate slower growth and higher inflation in the U.S., while China faces deflationary pressures due to tariffs.

The IMF has cautioned that without concerted global efforts to de-escalate trade tensions, the economic fallout could deepen, with emerging markets bearing the brunt of the damage.

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In a surprise move, the Reserve Bank of India slashed policy rates beyond market expectations and shifted its policy stance from accommodative to neutral. 

ING Group suggests the RBI’s current action indicates a likely pause in policy adjustments.

However, the possibility of future easing remains open, contingent on potential declines in either growth or inflation.

The Reserve Bank of India (RBI) has significantly lowered the repo rate by 50 basis points (bps) to 5.5%, exceeding market expectations. 

The cut in interest rates brings the total repo rate reduction by the RBI in the current cycle to 100 bps, resulting in a real policy rate of 2.3%.

The RBI also reduced the cash reserve ratio by a massive 100 bps to 3%, the lowest since 2021.

“The RBI’s rate actions today hint at growing conviction within the Monetary Policy Committee that lower inflation is likely to persist, and that GDP growth remains on a weaker trajectory,” Deepali Bhargava, regional head of research, Asia-Pacific at ING Group, said in a note. 

By front-loading rate cuts, the RBI seems keen to ensure the benefits of lower rates reach the economy and that there’s plenty of liquidity to keep things moving.

Not the end of rate cuts

The RBI surprised markets by changing its policy stance from ‘accommodative’ to ‘neutral’.

This shift was particularly unexpected as it occurred only two months after adopting an accommodative position, marking a significant reversal.

“That’s a pretty quick U-turn, and it suggests the central bank might be done with rate cuts for now,” Bhargava said. 

Even though CPI inflation remains under the RBI’s target and the real policy rate exceeds the typical comfort level of roughly 1.5%, it paradoxically feels somewhat counterintuitive, according to Bhargava.

She said:

We continue to expect another 25bp rate cut by the RBI this year in the fourth quarter. 

The RBI indicates a halt in policy adjustments but retains the option for further easing should economic growth or inflation decline.  

It has revised down its consumer price index inflation prediction from 4.0% to 3.7% and maintained its GDP growth forecast at 6.5% for the fiscal year concluding in March 2026.

“Our own GDP growth estimates are slightly weaker than the RBI’s, and with real policy rates still sitting well above historical norms, we continue to expect one 25bp rate cut from the RBI later this year, likely in 4Q,” Bhargava said. 

Impact on markets

A solitary interest rate cut today is unlikely to significantly affect the Indian Rupee (INR), according to ING.

This is likely a reaction to decreased inflation rather than an indication of growth worries.

ING anticipates fluctuating market conditions. However, the RBI’s focus on building foreign exchange reserves, a projected GDP growth slowdown due to tariffs and geopolitical issues, should support the currency and likely lead to an upward trajectory.

In the past year, the 10-year bond yield has seen a surge of over 100 basis points.

This increase can be attributed to a combination of factors: diminishing inflation rates and a favorable equilibrium between demand and supply.

“We still think the fundamentals support a further drop in yields, but the pace of decline is likely to be more gradual from here,” Bhargava said.

Given the ample liquidity within the system, the shorter end of the curve is expected to maintain strong support.

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