Emerging Markets Are Delivering Over 22 Percent Returns and Most American Investors Are Missing It Entirely

Summary

Emerging markets are outperforming the S&P 500, with the iShares MSCI Emerging Markets ex China ETF (EMXC) up 29.2% year to date, and broad emerging markets funds like iShares Core MSCI Emerging Markets ETF (IEMG) and iShares MSCI Emerging Markets ETF (EEM) up around 20%. This performance gap suggests a potential sector rotation opportunity. Most American investors are underexposed to these high-growth markets, indicating a possible capital flow shift.

Market Context

The significant outperformance of emerging markets ETFs, such as EMXC, IEMG, and EEM, may attract capital from underperforming sectors, potentially leading to a rotation into these assets. This could result in increased demand and upward price pressure on emerging markets stocks, while possibly dampening enthusiasm for the S&P 500.

Key Drivers

• Outperformance of emerging markets ETFs like EMXC, IEMG, and EEM
• Potential sector rotation from underperforming sectors to emerging markets
• Underexposure of American investors to emerging markets

Risks

• Emerging markets are often associated with higher volatility and geopolitical risks
• A strong US dollar could negatively impact emerging markets performance

Time Horizon

Medium Term