Baillie Gifford’s Emerging Markets Fund: The Comeback Nobody Saw Coming
By Genevievecjackson@gmail.com
At Buyside Digest, we pay attention when Baillie Gifford speaks — especially when their Emerging Markets team sounds quietly optimistic. Their Q3 2025 Investor Report reads less like a victory lap and more like a subtle declaration that the tide has turned. After years of frustration, Emerging Markets are finally outperforming the S&P 500, something that hasn’t happened since 2020.
The irony? It’s happening despite everything that should be holding them back — tariffs, geopolitics, and endless talk of deglobalization.
For most of the last decade, investing in emerging markets has felt like waiting for an album to drop that never does. China flopped, Brazil wobbled, India got expensive, and global allocators quietly ghosted the entire asset class. But here we are in 2025, and Baillie Gifford’s Emerging Markets Equities Fund is finally having a moment—just as the West is busy arguing about TikTok bans and GPU subsidies.
According to the Q3 letter, the MSCI Emerging Markets Index is now outperforming the S&P 500 for the first time since 2020. If you haven’t heard cheering, that’s because nobody believes it yet. The irony, as the managers note, is delicious: emerging markets are suddenly acting more stable than the developed ones.
Their point is simple: many EM economies have spent the last few years doing the grown-up thing—orthodox monetary policy, fiscal restraint, and pro-business reforms—while the so-called developed world runs fiscal cosplay experiments. In other words, the kids are alright, the parents are drunk.
The China Redemption Arc
The managers admit the biggest surprise this year has been China—yes, that China. The one declared “uninvestable” by Western pundits who only read headlines about property collapses and tech crackdowns. But lately, Beijing’s been playing nice. There’s measured stimulus, looser property controls, and the government’s doing its best impression of capitalism’s hype man. Even Xi is reportedly prepping for a bromantic summit with Trump at the APEC meeting in South Korea.
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For the first time in years, Chinese equity markets are… functioning. Alibaba and Baidu are investing heavily in AI, Huawei’s back in the chip game, and private players like DeepSeek are pushing large language models that don’t need to ask Sam Altman for permission. It’s still far from perfect, but as Baillie Gifford sees it, China’s moving from policy risk to opportunity risk. Which, in EM terms, is practically a bull market.
Korea’s Value-Up Glow-Up
South Korea’s market, long trapped under the “chaebol discount,” is finally trying therapy. For decades, Korean conglomerates treated minority shareholders like decorative accessories—nice to have, rarely consulted. But in 2025, the government rolled out its “Value Up” initiative, forcing boards to act like shareholders actually exist.
For the first time, directors have fiduciary duties to investors, not just to their cousins on the payroll. Stock prices noticed. The Baillie Gifford team still avoids the usual governance nightmares, but they’re sniffing around Hyundai, where the Chung family apparently discovered “capital efficiency” and “outside shareholders” in the same dictionary.
The AI Tailwind Nobody’s Talking About
Artificial intelligence has been the big global macro meme of 2025, but emerging markets have quietly been the actual supply chain. Everyone’s obsessed with OpenAI’s prompts while Taiwan’s TSMC, South Korea’s SK Hynix, and a dozen other companies quietly mint the chips, wafers, and memory that make it all happen.
Baillie Gifford’s portfolio has leaned right into that tailwind. The letter points to the widening appreciation of Asian AI capabilities—particularly in China, where the talent, data, and sheer population of engineers make Silicon Valley’s “founders’ dinners” look like summer camp. The managers argue this will be the first cycle where emerging markets don’t just supply cheap labor—they’ll own the intellectual capital too.
CATL and the Charge of the Battery Brigade
Among the fund’s top contributors was CATL, the world’s largest battery maker. Q2 results blew expectations away: battery sales up 35% year-over-year, revenue up 8%, and margins fattening to 25.6%. CATL is running at 90% utilization, printing cash, and paying a dividend.
The company now controls 44% of the European EV battery market, and Baillie Gifford loves that it’s diversified beyond EVs into grid storage. Basically, they’ve built a money-printing lithium empire that doesn’t depend on car sales staying frothy.
Samsung’s Back (and So Is Foundry Pride)
Then there’s Samsung Electronics, the perennial “almost there” story of Korean tech. For half the year, it was getting dunked on for lagging behind TSMC. But in a plot twist Elon Musk himself confirmed, Tesla signed a $16.5 billion multi-year chip deal with Samsung—the biggest in its history. Suddenly, Samsung’s new Texas fab is making chips for Tesla’s AI6 project.
If you were looking for the headline that officially ended the “Samsung is done” narrative, that was it.
MercadoLibre and the Brazilian Buzzkill
Not everything was fireworks. Latin America dragged. MercadoLibre missed estimates after it went full Amazon and decided to eat its own margins with free shipping in Brazil. The move boosted GMV and market share but crushed profitability. Baillie Gifford’s take: worth it. They’d rather back a company growing into dominance than one worshipping short-term EPS.
Meanwhile, B3, Brazil’s stock exchange operator, got punished by absurdly high real interest rates—15% nominal with 5% inflation. At that rate, why bother owning equities when your savings account yields like a hedge fund? Add in a 50% U.S. tariff slap on Brazilian imports (yes, fifty), and local sentiment was toast. The fund’s managers, ever the optimists, think this pain sets up a rebound once rates normalize.
New Picks, Old Discipline
Baillie Gifford added several names that scream long-term patience:
CATL – doubling down on energy dominance
Electrobras – Brazil’s power utility play
FPT – Vietnam’s quietly world-class IT outsourcer
Hyundai Glovis – logistics with leverage to global trade recovery
Kanzhun – China’s LinkedIn with actual growth
They trimmed NAVER, Shenzhou, WNS, and Haier Smart Home, all for valuation or opportunity reasons. There’s nothing panicky in the tone—just quiet rotation into conviction.
The Outlook: Cautious, but Feeling Pretty Good About It
If there’s a unifying theme in this letter, it’s that sentiment is finally catching up to fundamentals. The team’s not calling a melt-up, but they like what they see: better governance, healthier balance sheets, and economies with real policy credibility.
The line that best captures it: “The vast majority of our companies are net cash.” In 2025, that’s practically a moral stance.
They’re still aware that volatility’s a feature, not a bug, and the fund remains geographically diversified enough to survive whatever tariff or tantrum Washington invents next. From Vietnamese software to Brazilian utilities, the pipeline for new ideas is overflowing—just not yet overpriced.
Chart: Fund vs. Market
Here’s how Baillie Gifford’s Emerging Markets Equities Fund stacks up lately (estimated based on reported data and MSCI EM performance):
Year
Fund Net Return
MSCI EM Index
Notes
2021
+2.5%
+0.9%
Reopening blues
2022
-22.1%
-20.1%
China panic
2023
+9.9%
+7.8%
Tech revival
2024
+13.3%
+10.9%
Stabilization begins
2025 YTD (Q3)**
+21.9%
+18.2%
EMs finally outperform
Source: Fund reports, MSCI, Bloomberg. Net of fees.
Final Thoughts
For years, emerging markets have been the ugly stepchild of global investing—volatile, misunderstood, and habitually under-owned. Baillie Gifford’s Q3 letter reads like the first chapter of a comeback story.
China’s no longer radioactive, Korea’s learning capitalism, Brazil’s due for an interest rate comedown, and Vietnam’s quietly stealing India’s outsourcing crown. In short, the fund’s message is this: EM isn’t broken—it’s just been early.
As the developed world drowns in debt, maybe it’s time to look where the math still works.
