Software

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.

The F-35’s ‘computer brain,’ including its cloud-based components, could be cracked to accept third-party software updates, just like ‘jailbreaking‘ a cellphone, according to the Dutch Defense Minister. The statement comes as foreign operators of the jets continue to be pressed on what could happen if the United States were ever to cut off support. President Donald Trump’s administration has pursued a number of policies that have resulted in new diplomatic strains with some long-time allies, especially in Europe.

“If, despite everything, you still want to upgrade, I’m going to say something I should never say, but I will anyway: you can jailbreak an F-35 just like an iPhone,” Gijs Tuinman said during an episode of BNR Nieuwsradio‘s “Boekestijn en de Wijk” podcast posted online yesterday, according to a machine translation.

Tuinman, who has been State Secretary for Defense in the Netherlands since 2024, does not appear to have offered any further details about what the jailbreaking process might entail. What, if any, cyber vulnerabilities this might indicate is also unclear. It is possible that he may have been speaking more notionally or figuratively about action that could be taken in the future, if necessary.

TWZ has reached out to the F-35 Joint Program Office and manufacturer Lockheed Martin for responses to Tuinman’s remarks.

As we have explored in detail in the past, the F-35 program imposes unique limits on the ability of operators to make changes to the jet’s software, as well as to associated systems on the ground. Virtually all F-35s in service today see software updates come through a cloud-based network, the original version of which is known as the Autonomic Logistics Information System (ALIS). Persistent issues with ALIS have led to the development of a follow-on Operational Data Integrated Network (ODIN), the transition to which is still ongoing.

The ALIS/ODIN network is designed to handle much more than just software updates and logistical data. It is also the port used to upload mission data packages containing highly sensitive planning information, including details about enemy air defenses and other intelligence, onto F-35s before missions and to download intelligence and other data after a sortie.

Though now dated, the video below still offers a useful explanation of ALIS’ functions.

ALIS: Keeping the F-35 Mission Ready

To date, Israel is the only country known to have successfully negotiated a deal giving it the right to install domestically-developed software onto its F-35Is, as well as otherwise operate its jets outside of the ALIS/ODIN network. The Israelis also have the ability to conduct entirely independent depot-level maintenance, something we will come back to later.

Issues with ALIS, as well as concerns about the transfer of nationally sensitive information within the network, have led certain operators, including the Netherlands, to firewall off aspects of their software reprogramming activities in the past. However, the work still occurs in the United States under the auspices of the U.S. military and Lockheed Martin.

As TWZ has written in the past:

“It’s this mission planning data package that is a major factor to the F-35’s survivability. The ‘blue line’ (the aircraft’s route into an enemy area) that is projected by the system is based on the fusion of a huge number of factors, from enemy air defense bubbles to the stealth and electronic warfare capabilities of the aircraft, as well as onboard sensor and weapons employment envelopes and integrated tactics between F-35s and other assets. To say the least, it is one of the F-35’s most potent weapons. Without it, the aircraft and its pilot are far less capable of maximizing their potential and, as a result, are more vulnerable to detection and being shot down.“

So, while jailbreaking F-35’s onboard computers, as well as other aspects of the ALIS/ODIN network, may technically be feasible, there are immediate questions about the ability to independently recreate the critical mission planning and other support it provides. This is also just one aspect of what is necessary to keep the jets flying, let alone operationally relevant.

TWZ previously explored many of these same issues in detail last year, amid a flurry of reports about the possibility that F-35s have some type of discreet ‘kill switch’ built in that U.S. authorities could use to remotely disable the jets. Rumors of this capability are not new and remain completely unsubstantiated.

At that time, we stressed that a ‘kill switch’ would not even be necessary to hobble F-35s in foreign service. At present, the jets are heavily dependent on U.S.-centric maintenance and logistics chains that are subject to American export controls and agreements with manufacturer Lockheed Martin. Just reliably sourcing spare parts has been a huge challenge for the U.S. military itself, as you can learn more about in this past in-depthTWZ feature. F-35s would be quickly grounded without this sustainment support.

Altogether, any kind of jailbreaking of the F-35’s systems would come with a serious risk of legal action by Lockheed Martin and additional friction with the U.S. government. What would have to happen for a country like the Netherlands to pursue that course of action would also likely be just one symptom of a much more serious breakdown in relations with Washington. Doing this could easily prompt a cutoff in spare parts and other support, if that had not already occurred, which would leave jailbroken jets quickly bricked on the ground. To be clear, cracking the software would do nothing to mitigate the downstream impacts of being shut out from critical sustainment pipelines.

Spats between President Donald Trump’s administration and certain U.S. allies have already created a degree of additional turbulence for the F-35 program, as evidenced by the ‘kill switch’ reporting last year. Most recently, trade disputes and other recent rifts in relations between Ottawa and Washington have led Canadian authorities to launch a review of their F-35 acquisition plans. There are broader questions now about the future of U.S. defense exports, especially in Europe, in light of other diplomatic rifts with Washington.

At the same time, despite his comments about the possibility of needing to crack the jet’s computer systems, Dutch Defense Minister Tuinman remained broadly supportive of the F-35 during the BNR Nieuwsradio podcast.

“Even if this mutual dependency doesn’t result in software updates, the F-35, in its current state, is still a better aircraft than other types of fighter jets,” Tuinman stressed, according to a machine translation of an accompanying story about the podcast from BNR.

Altgoether, questions very much remain about just what ‘jailbreaking an F-35’ might look like in practical terms, and how that might impact the operational utility of the jets in the absence of support from the U.S. government and Lockheed Martin. At the same time, Tuinman’s comments do underscore larger issues surrounding the F-35 program, especially for foreign operators, many of which are not new.

Contact the author: joe@twz.com