The US sharemarket has had a great run of late, rebounding strongly from the March lows and hitting fresh highs.
The S&P 500 is up almost ten per cent in 2026 (including dividends), and we’re only a third of the way through the year.
That’s impressive, especially given the volatility we’ve seen lately.
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However, while the S&P 500 is getting all the headlines there’s another quietly outperforming it, and by a wide margin.
Emerging market shares have risen almost 20 per cent so far this year, easily outpacing the US and its tech heavyweights.
It was the same story in 2025, when emerging market shares gained 34.4 per cent, leaving the US and its “modest” 17.9 per cent 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 per cent over that period while US shares gained a staggering 511 per cent.
On a per annum basis, that equates to just 2.3 per cent for emerging market equities, in contrast to 13.8 per cent 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 per cent 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 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 per cent 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 per cent, which means it’s overtaken China as number one despite having a 98 per cent smaller population.
Latin America has also been very strong, with Brazilian shares rising ten per cent in 2026 after a 34 per cent 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 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 per cent rise in the past 18 months or so.
About 85 per cent of the world’s population live in emerging and developing economies, which account for some 60 per cent of global GDP.
Their equity markets remain underrepresented relative to that size, with emerging markets overall accounting for a little more than 10 per cent of global indices.
A modest but material allocation could make for a nice complement to a traditionally US-centric share portfolio.
Market Insights enewsletter
Keep up to date with our fortnightly Market Insights enewsletter. Our research team provide timely and regular commentary and analysis on market developments, understanding investment jargon, and the impact of current events.
Mark Lister
Investment Director
Market Insights enewsletter
Keep up to date with our fortnightly Market Insights enewsletter. Our research team provide timely and regular commentary and analysis on market developments, understanding investment jargon, and the impact of current events.