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Markets Score 65 Bullish

Emerging Markets Hit Record Highs as Valuation Gap With US Equities Widens

Apr 28, 2026 15:00 UTC
EEM, VWO, SPY
Medium term

The MSCI Emerging Markets Index has surged 16% in 2026, significantly outperforming the S&P 500. Strong earnings upgrades are driving the rally despite a steep discount compared to US valuations.

  • MSCI Emerging Markets Index reached a record high
  • EM equities rose 16% in 2026
  • EM assets trade at a 44% discount to US equities
  • Rally supported by stronger earnings upgrades
  • EM performance significantly outpaced the S&P 500

Emerging market equities have entered a period of aggressive growth, with the MSCI Emerging Markets Index reaching a new record high. The index has posted a 16% gain for the year, comfortably outpacing the performance of the S&P 500. This rally is underpinned by a combination of stronger-than-expected earnings upgrades across developing economies and a stark valuation disparity. Currently, emerging market assets are trading at a 44% discount relative to their US counterparts, presenting a compelling value proposition for global investors. The 16% rise reflects a broader shift in capital allocation as investors seek growth outside of the saturated US large-cap space. The 44% discount suggests that while EM assets are hitting record peaks, they remain fundamentally undervalued compared to the premium prices commanded by US equities. This trend indicates a potential rotation in global portfolios. If earnings upgrades continue to materialize, the valuation gap may narrow further, driving sustained inflows into EM funds and increasing volatility in US-centric benchmarks as diversification strategies evolve.

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