It was the same story in 2025, when emerging market shares gained 34.4%, leaving the US and its “modest” 17.9% rise in the dust.
This level of outperformance is something we haven’t seen in years.
In fact, it’s been very much the opposite for a long, long time.
From 2011 to 2024, emerging markets were a perennial underperformer, rising just 38% over that period while US shares gained a staggering 511% (including dividends).
On a per annum basis, that equates to just 2.3% for emerging market equities, in contrast to 13.8% for the US.
There are a few reasons for the resurgence.
For a start, emerging market shares (as a group) look very different these days.
They’re no longer just commodity producers and low-cost manufacturers.
Almost 37% of emerging market indices are represented by technology, making this sector more dominant than it is in the S&P 500.
Memory chips are in huge demand, because artificial intelligence (AI) applications need to hold enormous amounts of information while they process it.
There are three major global leaders in memory chips. Micron is a US company, but Samsung and SK Hynix are in South Korea.
South Korea has grown to 19% of the MSCI emerging market index, mostly due to these two.
Then there’s Taiwan Semiconductor Manufacturing (TSMC), the biggest player in chip production and today the biggest stock exposure in the index.
These are all crucial parts of the AI ecosystem and the likes of Nvidia cannot succeed without their help.
TSMC has helped push Taiwan’s country weight to almost 25%, which means it’s overtaken China as No 1, despite having a 98% smaller population.
Latin America has also been very strong, with Brazilian shares rising 10% in 2026 after a 34% gain last year.
There’s a lot to like about emerging markets in a structural sense as well.
Economic growth prospects, demographic trends and a rising middle-class consumer class are all potential drivers of returns over the longer term.
That said, they’re a higher-risk proposition than developed markets, not to mention being more politically complicated.
A weaker US dollar, declining global interest rates and more investment capital looking for opportunities outside America would be a recipe for further gains in emerging market shares.
Those catalysts looked to be in place before the Iran conflict started.
However, the recent uncertainty has led to a renewed appetite for the greenback, while reigniting inflation risks and reminding investors of the relative safety of US stocks.
These headwinds could limit how far the rally runs, or send it into reverse if they get worse.
More optimistically, emerging market equities might have more to gain than other regions if a resolution is reached and the tension eases.
That makes this group very much worth a look, despite a 60% rise in the past 18 months or so.
About 85% of the world’s population live in emerging and developing economies, which account for some 60% of global gross domestic product (GDP).
Their equity markets remain underrepresented relative to that size, with emerging markets overall accounting for a little more than 10% of global indices.
A modest but material allocation could make for a nice complement to a traditionally US-centric share portfolio.
Mark Lister is Investment Director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser.