Fidelity International stated that if 2025 already appears to be a strong year for emerging markets, 2026 promises even greater potential.

The asset management giant, overseeing more than $1 trillion in assets, has joined a growing number of Wall Street banks in betting that a weaker U.S. dollar will help extend the rally in emerging market assets into next year.

U.S. President Donald Trump has been pushing the Federal Reserve for further interest rate cuts, while his administration seems content with the dollar nearly erasing last year's gains. Mike Riddell, portfolio manager of Fidelity's Strategic Bond Fund, noted that this enhances the appeal of assets in emerging economies with higher interest rates and currencies that still have room to appreciate.

"While markets have been talking about the emerging markets trade all year, major capital inflows have yet to materialize," Riddell said. "This sets the stage for 2026, when we believe allocations to emerging market debt could rise significantly."

For asset managers, surpassing the performance of emerging markets in 2025 will be a high bar. MSCI indices indicate that emerging market currencies and equities are on track for their best annual performance since 2017.

Riddell described the dollar's decline as a "structural shift that is only just beginning to play out." His view aligns with recent assessments from Morgan Stanley, Bank of America, and Goldman Sachs. In contrast, Citigroup strategists this week advised emerging market investors to hedge against a potential dollar rebound.

Citing Brazil as an example, Riddell highlighted it as one of the emerging markets with further upside potential. The country's central bank maintains a benchmark interest rate of 15%, with a "solid" economic outlook and inflation around 5%, he noted.

"At these real yield levels, holding Brazilian sovereign bonds is almost a no-brainer," Riddell remarked.

He added that so far, the dollar's movement has largely been reflected in its fluctuations against the euro.

"In contrast, many major emerging market currencies are priced as if reflecting crisis conditions rather than current realities, leaving significant room for appreciation."