Overview
The MSCI Emerging Markets Index has rebounded to record levels this year, achieving a gain of approximately 14% even as fears of a conflict-driven downturn circulated in markets. That advance has outpaced the roughly 5.6% rise recorded by the S&P 500 over the same period, underscoring a divergence between emerging-market equities and U.S. large-cap performance.
AI demand shields Asian technology hubs
A primary force behind the rally has been the rapid build-out of artificial intelligence infrastructure. Suppliers located in South Korea and Taiwan have benefited directly from strong global demand for the hardware and components that underpin AI systems. South Korea's Kospi benchmark has climbed 57% in 2026, while Taiwan's Taiex has advanced 34% in the period referenced. Major firms have posted outsized gains - Samsung has risen 84% so far this year, and Taiwan Semiconductor Manufacturing Co. has delivered double-digit returns as well.
Those technology gains have helped markets in the region absorb the effects of higher energy prices. In particular, South Korea's heavy reliance on Middle Eastern crude - importing roughly 70% of its oil from the region - could have been a headwind as energy costs rose, but the strength of tech sector returns has offset some of that pressure.
Analysts note that while emerging markets tend to be volatile, comparatively lower valuations and growth potential continue to draw investors seeking alternatives to U.S. equities.
Brazil and exporters withstand energy shocks
Beyond Asia, oil-exporting emerging economies with limited dependence on Middle Eastern supplies have also attracted investor interest. Brazil stands out in this regard: its Bovespa index has gained 16% this year amid improved oil export dynamics. Since becoming a net oil exporter in 2017, Brazil's production profile has been expanding; it is projected to reach a production capacity of 4.76 million barrels of crude a day by 2030.
This insulation from energy shocks has supported strong cash returns from Brazil's materials and financial sectors through dividends. Reflecting growing investor demand, the iShares MSCI Brazil ETF has nearly quadrupled in size over the last year to about $12 billion.
Valuation picture
Even after recent gains, emerging-market equities remain cheaper on earnings multiples than major U.S. benchmarks. The MSCI EM ETF trades at roughly 18.4 times earnings, versus about 28.9 times for the S&P 500, a gap that market participants cite when weighing allocations between regions.
Conclusion
The combination of AI-driven technology demand in East Asia and stronger oil export profiles in countries such as Brazil has supported emerging-market equities through a period of geopolitical uncertainty and higher energy prices. While volatility is a known characteristic of these markets, their relative valuation advantage and targeted sector strength have kept them on investors' radars.