"The iShares MSCI Emerging Markets ETF (NYSE:EEM) surged 39% in 2025 and added another 3.9% in the first week of 2026. The structural headwinds that kept emerging markets out of favor may finally be reversing. JPMorgan projects up to $50 billion flowing into emerging debt funds in 2026, while Morgan Stanley and Bank of America upgraded their outlook on the asset class."
"The biggest macro driver for EEM in 2026 will be the U.S. dollar. After posting its sharpest annual decline in eight years during 2025, the dollar is forecast to weaken further through mid-2026. When the dollar weakens, EM stocks and bonds become more attractive to global investors, and local currency debt delivers better returns. Morgan Stanley expects the dollar decline to continue into mid-2026, creating a tailwind for funds like EEM."
EEM delivered large gains in 2025 and early 2026 as currency and capital flows shifted in favor of emerging markets. Major banks forecast substantial inflows into emerging market debt and upgraded outlooks on the asset class. A weakening U.S. dollar acts as the primary macro catalyst, making EM stocks and local‑currency debt more attractive and boosting returns. China comprises roughly a quarter of EEM, with top holdings including Tencent, Samsung, and SK Hynix, while Indian names add additional exposure. Historical DXY levels below 100 have coincided with EM outperformance, and Fed rate cuts could sustain the dollar weakness.
Read at 24/7 Wall St.
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