Emerging market equities are capturing renewed investor interest as concerns mount over U.S. economic stability, highlighted by Moody’s recent downgrade of America’s credit outlook. A string of Wall Street moves has further fueled the momentum shift, marking what some analysts are calling the beginning of a global portfolio rotation.
Bank of America recently dubbed emerging markets “the next bull market,” pointing to a weakening dollar, peak U.S. bond yields, and signs of economic revival in China. “Nothing will work better than emerging market stocks,” wrote strategist Michael Hartnett and his team.
In a similar move, JPMorgan upgraded its outlook on developing market stocks from neutral to overweight, citing improved U.S.-China trade relations and appealing valuations.
Investor sentiment began turning sharply last month, triggered by a broad selloff in U.S. bonds, equities, and the dollar. That downturn was exacerbated by President Donald Trump’s April 2 announcement of new “reciprocal” tariffs targeting both allies and adversaries.
While most markets initially declined, emerging markets quickly diverged. Between April 9 and 21, the S&P 500 lost over 5 percent, while the MSCI Emerging Markets Index surged 7 percent. Year-to-date, the index has climbed 8.55 percent, vastly outpacing the S&P 500’s modest 1 percent gain.
On Tuesday, U.S. equities snapped a six-day rally, while 30-year Treasury yields touched 5 percent — a level unseen since late 2023 — amid lingering fallout from the credit downgrade.
For many strategists, the developments signal the beginning of a new era. “After trailing the S&P for a decade, EM equities are well positioned to outperform in the next cycle,” said Malcolm Dorson, head of active strategies at Global X ETFs. He cited a “perfect storm” of factors: a softer dollar, minimal investor exposure, and high growth potential at discounted prices.
According to Dorson, most U.S. investors hold only 3 to 5 percent of their assets in emerging markets, compared to the 10.5 percent weighting in the MSCI Global Index. JPMorgan data shows that emerging economies are currently trading at 12 times forward earnings, with a valuation gap wider than historical norms.
India stands out as a long-term growth opportunity, Dorson noted, while Argentina offers compelling value. He also pointed to recent sovereign credit upgrades in Brazil and Greece as signals of improving fundamentals.
“We may be witnessing the start of a rotation,” said Mohit Mirpuri, an equity fund manager at SGMC Capital. “After years of U.S. dominance, global investors are seriously considering alternatives, and emerging markets are back in focus.”
A weaker dollar, driven by fiscal pressures and rising debt, tends to support capital inflows into emerging economies and stabilizes their currencies, added Ola El-Shawarby, a portfolio manager at VanEck.
While emerging markets have staged similar rallies in the past that lost momentum, El-Shawarby argues this time could be different. “This cycle appears grounded in more than just short-term catalysts,” she said. “We’re seeing deeply undervalued assets, structurally stronger economies, and underexposure from global investors. That combination is powerful.”
With macro conditions shifting and sentiment evolving, many believe emerging markets are not only back on the radar — they might be leading the next global rally.
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