Why we believe this EM rally has legs

Emerging market equities have staged a notable comeback, with the MSCI EM index delivering a 34.3% return in 2025 and extending its outperformance into 2026, even as the S&P 500 has largely stalled. This resurgence appears supported by structural tailwinds rather than a short-lived bounce, including a weaker US dollar that eases debt burdens, supports commodities and attracts capital flows.

A potential multi‑year commodity upcycle, driven by underinvestment and rising demand for metals tied to data centers and energy transition themes, further bolsters resource‑rich EM countries. At the same time, growing domestic consumption and expanding middle classes are reshaping EMs from pure commodity plays into more diversified growth stories, with markets such as Taiwan, South Korea, India and China positioned to benefit from AI investment and improving trade dynamics.

Key risks remain—a US slowdown or renewed dollar strength could challenge the asset class—but relatively attractive valuations, solid earnings growth and accommodative local policy suggest EMs may continue to outperform through the remainder of 2026.