Can emerging markets’ stellar run continue?

Subscribe to enjoy similar stories. For much of the past 20 years emerging markets (EMs) have seemed doomed never to emerge. The world’s up-and-coming economies were supposed to offer daredevil investors a shot at outsize returns: the chance to profit from the superior growth of middle-income countries as they caught up with rich ones.

Sure enough, the IMF reckons that emerging and developing economies, on average, have increased their output faster than advanced ones every year this century, often by several percentage points. Yet after a terrific boom in the 2000s their stockmarkets had, until recently, generated lousy returns. It took until 2021 for MSCI’s index of EM shares to reattain its peak from 2007—only quickly to crater again, by over 40%.

Now EM stocks are soaring once more. The MSCI index that tracks them rose by 34% in 2025, compared with 21% for its developed-markets equivalent. With this year barely a month old, EMs are already up by another 9%.

Currencies from the Mexican peso to the Malaysian ringgit have surged against the dollar. The returns of local-currency EM bonds have trounced those of risky “high-yield" American or European debt. Can the stellar run continue? A big part of the answer depends on what happens next with the dollar.

Since the late 1960s, when the Bretton Woods system of fixed exchange rates began to fall apart, the greenback has been through four major bear markets. Each time, note analysts at Bank of America, EM stocks have roared. Their recent success has come as, once again, the currency’s strength has waned.