Emerging Markets Smash 17-Year Record with Widest Performance Gap Over S&P 500 Since 2008

Emerging markets post strongest relative gains vs US stocks since 2008. Discover why 2026 marks the end of US market dominance as EM surges on AI and value.

By: AXL Media

Published: Feb 25, 2026, 8:30 AM EST

Source: The information in this article was sourced from Benzinga

Emerging Market Equities End Decade of Underperformance with Record Gains

The iShares MSCI Emerging Markets ETF (EEM) has achieved a rare milestone by recording nine consecutive weeks of growth, a winning streak not witnessed since the peak of the 2005 leadership cycle. According to recent market data, emerging markets (EM) have outperformed the SPDR S&P 500 ETF Trust by 13 percentage points over the last 60 days, marking the most powerful relative surge since the 2008 financial crisis. This momentum shift follows a stellar 2025 performance where the MSCI Emerging Markets Index rose 34% compared to the S&P 500’s 18% return. Analysts suggest that the inertia of being underweight in EM is now being replaced by a aggressive reallocation as global investors seek to diversify away from overextended U.S. mega-cap technology stocks.

Valuation Disparity Drives Capital Reallocation Away from Stretched U.S. Multiples

A primary catalyst for the current rotation is the stark valuation gap between U.S. and developing economies. Emerging markets are currently trading at a 40% discount to U.S. equities on a forward price-to-earnings basis, sitting at roughly 13.5x compared to the S&P 500’s multiple of 22.5x. According to Eastspring Investments, the discount on a price-to-book basis is even more significant at 61%, creating a compelling margin of safety for institutional buyers. This "sell America" sentiment is gaining traction as investors realize that the U.S. market has become a concentrated bet on artificial intelligence, while emerging markets offer broader exposure to materials, industrials, and improving corporate governance.

Dollar Weakness and Supreme Court Rulings Act as Macro Tailwinds

The structural shift in favor of EM assets is being significantly bolstered by the broader downtrend of the U.S. dollar, which has fallen roughly 10% over the past year. According to analysts at 22V Research, recent policy developments, including a landmark Supreme Court decision regarding the federal government's tariff authority, have further eroded dollar strength. A weaker greenback typically lowers debt servicing costs for developing nations and increases the value of their exports, providing a favorable backdrop for local currency gains. Unlike previous years where dollar spikes acted as a headwind, the current environment is allowing EM central banks to main...