Something remarkable happened in global markets on Monday. The MSCI Emerging Markets Index—the benchmark that tracks stocks across 24 developing economies—rose 1.6% to close at the highest level in its 38-year history.

The index has now added roughly $10 trillion to global shareholder wealth since April, when the artificial intelligence rally began spreading beyond U.S. mega-caps into international markets. On Friday, it briefly pierced the psychologically significant 10,000-point threshold for the first time ever.

The Best Start Since 2018

The 2026 opening has been nothing short of spectacular for emerging market investors. The index has posted its strongest first-week performance since 2018, easily outpacing U.S. benchmarks.

Taiwan Semiconductor Manufacturing Company (TSMC) has been the single largest contributor to the rally, accounting for nearly half of the index's gains after Goldman Sachs raised its price target on the chip giant. Other major movers include Samsung Electronics, SK Hynix, and Alibaba Group—all companies positioned to benefit from surging global demand for AI chips and infrastructure.

"For the first time since 2017, emerging stocks are outperforming U.S. peers, and carry trade strategies have reaped the best profits since 2009."

— Bloomberg News analysis

The rally marks a significant shift in market leadership. After years of U.S. exceptionalism—when American tech stocks dominated global returns—capital is finally flowing back to developing markets at a meaningful pace.

Why Emerging Markets Are Surging

Several forces are converging to drive the rally:

Artificial Intelligence Optimism. Asian semiconductor companies sit at the heart of the global AI supply chain. TSMC manufactures the advanced chips that power Nvidia's AI accelerators. Samsung and SK Hynix produce the high-bandwidth memory that AI systems require. As AI spending accelerates worldwide, these companies are direct beneficiaries.

China Stimulus Expectations. Investors are betting that Beijing will roll out additional economic stimulus measures in 2026, providing a floor under Chinese stocks that have struggled in recent years. Any meaningful support for China's property sector or consumer spending would ripple through emerging market indices, given China's massive weighting.

Dollar Weakness. The U.S. dollar suffered its steepest annual decline in eight years in 2025, making emerging market assets more attractive on a relative basis. A weaker dollar also eases debt burdens for developing countries that borrowed in U.S. currency.

Attractive Valuations. After years of underperformance, emerging market stocks trade at a significant discount to U.S. equities. The MSCI Emerging Markets Index trades at roughly 12 times forward earnings, compared to nearly 22 times for the S&P 500. For value-oriented investors, that gap has become impossible to ignore.

Wall Street Is Getting Bullish

Major investment banks have joined the bullish chorus. JPMorgan Chase and Morgan Stanley have both upgraded their emerging market outlooks, predicting these stocks will benefit from continued dollar weakness and the investment explosion in artificial intelligence.

The capital flows tell the story. This year's rush into emerging market securities was the strongest since 2009 across stocks, bonds, and currencies combined. Investors who avoided these markets for years are suddenly scrambling to build exposure.

The Risks Haven't Disappeared

For all the optimism, emerging markets remain a volatile asset class with unique risks:

  • Trade War Escalation: President Trump's tariff threats could disrupt global supply chains and hurt export-dependent economies across Asia and Latin America.
  • China Property Uncertainty: The Chinese real estate sector remains troubled, and a deeper crisis could send shockwaves through regional markets.
  • Currency Volatility: While the dollar has weakened, any reversal could quickly deflate emerging market gains.
  • Geopolitical Flashpoints: From Taiwan tensions to the aftermath of Venezuela's regime change, geopolitical risks loom over several key markets.

Investment Implications

For U.S.-based investors, the emerging market rally raises an important question: Is it time to diversify beyond American stocks?

The case for allocation is compelling. Emerging markets offer exposure to the world's fastest-growing economies, younger demographics, and companies at the forefront of global technology supply chains. After years of U.S. dominance, portfolio diversification may finally be rewarded.

Investors can gain broad emerging market exposure through exchange-traded funds like the iShares MSCI Emerging Markets ETF (EEM) or the Vanguard FTSE Emerging Markets ETF (VWO). For more targeted bets, country-specific or sector-specific funds allow investors to overweight particular opportunities.

The Bottom Line

The MSCI Emerging Markets Index's breakthrough to record highs is a watershed moment for global investing. After years of disappointing returns, developing market stocks are finally having their moment—powered by the same artificial intelligence revolution that has transformed U.S. markets.

Whether this rally has legs or is simply a catch-up trade remains to be seen. But for now, emerging markets have reclaimed their place on investors' radar screens—and the money is flowing in to prove it.