emerging

Emerging markets are roaring back in 2026, staging a rally that has surprised investors not only for its speed — unmatched in decades — but also for the broader global context in which it is unfolding.

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While US software stocks reel from artificial intelligence disruption fears and the S&P 500 remains broadly flat year-to-date, emerging markets are decoupling.

In a reversal of long-standing market dynamics, the asset class is briefly playing an unexpected role: that of a relative safe haven.

The rally is broad, persistent and increasingly supported by flows, macro conditions and structural shifts in global trade.

Emerging markets dominate global performance rankings

Data from CountryETFTracker show that the five best-performing country-specific exchange traded funds so far this year all belong to emerging markets.

Leading the rally is South Korea’s iShares MSCI South Korea ETF (EWY), up 43.28% year-to-date after a 96% surge in 2025.

The gains reflect the dominance of chipmakers such as Samsung Electronics and SK Hynix, which are benefiting from strong global demand for AI-related memory and advanced semiconductors, lifting exports and corporate earnings.

It is followed by Peru’s iShares MSCI Peru ETF (EPU), which has gained 25.31%, Brazil’s iShares MSCI Brazil ETF (EWZ) at 22.03%, Thailand (THD) at 21.38% and Turkey (TUR) at 21.32%.

The broader MSCI Emerging Markets Index, tracked by the iShares MSCI Emerging Index Fund (EEM), is up nearly 13% year-to-date.

Two elements stand out here: the scale of the relative strength and the remarkable consistency of the rally.

Over the past two months, EEM has achieved the strongest relative surge against the S&P 500 since 2008. Over 12 months, the performance gap has widened to 25 percentage points — the largest divergence since January 2010.

Emerging markets have also recorded 13 positive months out of the last 14 and closed higher for nine consecutive weeks — a streak not seen since 2005.

There is, unmistakably, a structural trend under way.

Record inflows toward geographic capital reallocation

The rally is not only price-driven but also flow-driven.

The iShares MSCI Emerging Markets ETF attracted more than $4bn (€3.7bn) in January 2026, its strongest month for inflows since 2015.

South Korea alone drew $1.6bn (€1.5bn) in January and over $1bn (€0.9bn) in February, while Brazil attracted nearly $1bn (€0.9bn) in January.

The surge in allocations suggests that institutional investors are actively increasing exposure to emerging markets.

Importantly, flows appear broad-based rather than concentrated in a single thematic trade.

While Asia-focused markets have benefited from AI supply-chain positioning, Latin American funds have drawn support from commodities and cyclical exposure.

Why is this happening?

1) Rotation away from crowded US tech

Much of 2026’s market narrative has centred on artificial intelligence disruption, particularly in long-duration US software stocks.

After years of heavy concentration in mega-cap American technology names, investors are reassessing exposure as valuations look stretched and volatility rises.

Emerging markets, by contrast, began the year trading at sizeable discounts to developed peers.

Capital is rotating away from crowded US growth trades into cyclicals, commodities and regions directly exposed to AI hardware demand.

Ed Yardeni of Yardeni Research highlighted that while the US economy still remains exceptional, emerging economies benefit from expanding middle classes, rising industrial output and export growth that increasingly outpaces advanced economies.

2) Dollar weakness supports emerging markets

Currency dynamics are reinforcing the move towards emerging markets.

Jeff Buchbinder, Chief Equity Strategist at LPL Financial, indicates that the US Dollar Index is close to breaking its long-term uptrend, with expectations of further Federal Reserve rate cuts adding pressure.

Central banks’ gradual diversification away from the US dollar towards gold, alongside a persistent US trade deficit that continues to expand the global supply of dollars, is also exerting downward pressure on the greenback.

For emerging markets, a softer dollar eases financing conditions and improves relative returns.

Bank of America strategist David Hauner describes the near-certainty of the next Fed move being a cut as a ‘volatility compressor’ — a backdrop that has historically supported EM assets.

3) AI hardware boom supports Asia

While AI concerns weigh on US software, the hardware backbone of artificial intelligence is largely produced in Asia.

Taiwan dominates advanced semiconductor production, and South Korea’s Samsung Electronics remains a global leader in memory chips.

In Taiwan, technology-related goods now account for roughly 80% of exports and the bulk of recent growth. Revenue at TSMC continues to track the island’s export momentum, with analysts expecting another year of solid expansion in 2026.

4) Commodities and cyclicals add further support

The strength is not confined to technology exporters. Commodity-linked economies such as Brazil and Peru are benefiting from firm metals and agricultural demand, while Thailand and Turkey are gaining from improved financial conditions and cyclical recovery dynamics.

Against a backdrop of stabilising global growth and easing US monetary policy expectations, emerging markets combining export momentum with improving external balances are regaining investor attention.

Why this matters

The resurgence of emerging markets is more than a short-term performance story.

After a decade dominated by US exceptionalism, the current rally points to a potential broadening of global leadership — driven by currency dynamics, shifting capital flows and the geography of AI-driven production.

If sustained, the move could reshape portfolio allocations and challenge the long-standing concentration of global equity returns in a narrow group of US mega-cap stocks.

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