Korea entering bubble territory after 2025 'euphoria', says Fidelity

Chris Tennant, co-manager of Fidelity Emerging Markets (FEML) thinks the rally in the region has further to run, but warns parts of Korea look overheated. 

After a shaky start, emerging markets delivered one of their best annual performances in nearly a decade last year, with the MSCI Emerging Markets index climbing around 30% to beat most developed markets. 

FEML took full advantage of this renaissance and became the best-performing trust in its sector over one year, up 71.2%, comfortably ahead of Templeton Emerging Markets (TEM) in second at 57.3% and outperforming Nvidia. 

The £535m strategy, which Tennant runs alongside Nick Price, is distinguished by its mid-cap overweight and shorting strategy, which was the biggest boost to returns last year.

At the end of January, its largest country allocations were to Taiwan, South Korea and Brazil and its top three holdings made up of Taiwan Semiconductor, Naspers and Samsung Electronics. 

But, despite the nearly 5% holding in Samsung, and a top ten position in SK Hynix, Tennant spoke cautiously about valuations in Korea.

Korea caution 

South Korea was the best-performing stock market in the world in 2025, the MSCI Korea index racking up a stunning 101% total return and is continuing to fly in 2026, up 44.1% so far. 

The country’s ‘Value-Up’ programme aimed at improving corporate governance, encouraging higher payouts and treasury share cancellations, has played a large part in reviving sentiment and drawing in foreign flows.  

However, Tennant explained this ‘euphoria’ has spread into a number of sectors where fundamentals are actually ‘quite negative.’ ‘We’re definitely seeing some signs of a bubble in Korea,’ he said. 

According to its last factsheet, FEML was 3.2% underweight the region at the start of the year.

Other areas of trouble highlighted were China’s property market, with affordability ratios in major cities such as Beijing, Shanghai and Shenzhen still high relative to incomes despite a four-year downward spiral, while an inventory of unsold assets continues to build up – as well as parts of the IT services sector in India. 

Here, artificial intelligence has disrupted a longstanding labour-cost arbitrage, competing for cheap routine coding and maintenance work that had been offshored to the country.   

Still cheap? 

Notwithstanding these pockets of caution, FEML believes emerging markets remain undervalued, trading at a roughly 45% discount to developed markets today. 

Painting the macro picture, Tennant said the fiscal backdrop looks positive for much of the universe. 

While developed markets were handing out subsidies and accruing debt during Covid, the opposite happened in many emerging markets, especially China, which tightened its belt and sought to deflate the property market. ‘As a result, several [of these] countries now have greater fiscal headroom and flexibility to support growth if required,’ he said. 

He also described a positive monetary policy environment; countries that raised rates early in 2021-22 to combat inflation, ahead of their western peers, left with a ‘long runway’ for easing should the US Federal Reserve continue to make cuts. 

‘That’s a big tailwind, not just for the cost of equity in these countries, but also for the consumer,’ he said. 

Commodities and technology were top performers for the portfolio last year.  On the materials front, the trust sees further room for gold to appreciate with continued central bank buying, and is particularly bullish on copper, expecting demand to exceed supply by roughly 9m tonnes by 2035. 

‘The copper price needs to go up enough to incentivise switching into other metals like aluminium,’ Tennant said, adding: ‘I think we’re in a bull market for metals like copper for many years to come.’

In January, FEML was 17.4% overweight materials, with a 3.1% holding in Johannesburg-based mining business Pan African Resources.  

On tech, it continues to expect much of the value accrual from AI and data centres to go to emerging market companies, which Tennant noted ‘often offer superior revenue growth to many US tech companies at much cheaper multiples’.