Capital is officially moving East.
According to Refinitiv Lipper, Emerging Market (EM) equity ETFs have attracted roughly $14 billion in inflows year-to-date, putting the category on track for a monthly record. This massive rotation comes at the direct expense of US equities, which have seen $2.1 billion in net outflows over the same period.
📊 THE VALUATION GAP: Smart money is chasing the discount.
- MSCI Emerging Markets: Trading at 13.5x forward earnings.
- MSCI United States: Trading at 22.3x forward earnings.
- The Performance: YTD, the MSCI EM index is up 5.4%, crushing the MSCI US index (+0.4%).
🚀 THE DRIVERS: It’s not just a “value trade”—it’s a growth story.
- Tech & AI: James Fletcher (Ethos Investment Management) points to South Korean and Taiwanese tech firms surfing the AI demand wave.
- Structural Growth: Strong earnings estimates in India and Southeast Asia, plus a tactical rotation back into China.
- Macro: A weaker dollar and rising commodity prices are creating the perfect storm for EM outperformance.
🗣️ THE EXPERT VIEW: “We believe EM outperformance is more durable than just a short-term trade,” says Fletcher. The shift is being reinforced by a renewed “Sell America” trade, as allocators trim exposure to richly valued US assets to diversify into markets with better growth visibility.
💡 ANALYST TAKEAWAY: For the last decade, “Buying American Growth” was the only trade that mattered. But with a ~9 point gap in P/E ratios and EM finally outperforming on price action (+5.4%), the risk-reward has flipped. The flow data suggests this isn’t just tactical rebalancing—it’s the early innings of a new capital cycle where the US is no longer the default winner.
👇 Global Allocators: Is the EM rally sustainable without a full recovery in the Chinese property sector, or is the Tech/India story enough to carry the index?