{"id":12712,"date":"2026-02-09T12:00:00","date_gmt":"2026-02-09T12:00:00","guid":{"rendered":"https:\/\/hazelbakerfinancial.com\/weekly-market-commentary-five-reasons-the-run-in-emerging-markets-could-continue-february-9-2026\/"},"modified":"2026-02-09T12:00:00","modified_gmt":"2026-02-09T12:00:00","slug":"weekly-market-commentary-five-reasons-the-run-in-emerging-markets-could-continue-february-9-2026","status":"publish","type":"post","link":"https:\/\/advisors3.bradcable.com\/hazelbakerfinancial\/weekly-market-commentary-five-reasons-the-run-in-emerging-markets-could-continue-february-9-2026\/","title":{"rendered":"Weekly Market Commentary | Five Reasons the Run in Emerging Markets Could Continue | February 9, 2026"},"content":{"rendered":"
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Weekly Market Commentary | Five Reasons the Run in Emerging Markets Could Continue | February 9, 2026<\/h1>\n

PRINTER FRIENDLY VERSION<\/strong><\/a><\/p>\n

After a stellar 2025 in which emerging market (EM) equities returned 34%, 2026 is off to a good start with the MSCI EM Index up 7% year to date. Last year\u2019s near doubling of the S&P 500 return was driven mostly by a weakening U.S. dollar, which propped up EM returns, but attractive valuations and artificial intelligence (AI) investment played a role. This week we highlight five reasons we\u2019ve warmed up to EM.<\/p>\n

#1: U.S. Dollar Looks Like It Wants to Go Lower<\/h2>\n

Given the dollar was one of, if not the biggest drivers of EM outperformance last year, we\u2019ll start there. The U.S. Dollar Index is on the cusp of breaking a long-term uptrend. Further weakness would potentially introduce 5% downside or more from a technical analysis perspective. Prospects for two more rate cuts from the Federal Reserve (Fed) and a Trump Administration comfortable with a weaker (but stable) dollar to help balance trade increase the likelihood of a breakdown in the currency at some point.<\/p>\n

In addition, in a sanction-heavy geopolitical environment that kicked into high gear when Russia invaded Ukraine, central banks around the world have looked to diversify away from the greenback \u2014 the rally in gold over the past couple of years provides evidence. Finally, there is a structural anchor on the dollar in the still large \u2014 but slightly shrinking \u2014 trade deficit with the rest of the world. The more the U.S. spends on imports, the more global supply of dollars there is to weigh on its price based on supply and demand.<\/p>\n

One risk to our bearish dollar bias is sticky inflation, which could delay Fed rate cuts. We could also get a technical bounce off 96 due to potential safe haven buying if economic and market conditions worsen (not our base case). A dollar bounce could also come from the incoming Fed Chair signaling a more hawkish bias.<\/p>\n

U.S. Dollar Is on the Cusp of a Major Technical Breakdown<\/h3>\n

\"U.S.<\/p>\n

Source: LPL Research, Bloomberg 02\/05\/26
Disclosures: All indexes are unmanaged and cannot be invested in directly. Past performance is no guarantee of future results.<\/sub><\/p>\n

#2: Earnings Growth Is Accelerating<\/h2>\n

Our hesitation to jump on the EM bandwagon until our upgrade to neutral in early 2025 was centered on earnings. We would attribute much of the EM underperformance since the 2008\u20132009 Global Financial Crisis to earnings disappointment (though a strong U.S. dollar was another meaningful piece of the story). Year after year, EM fell short of optimistic earnings expectations. In fact, the consensus estimate for EM earnings per share (EPS) this year of around $90 is the same level as 2011, while EPS for the S&P 500 is up over 170% over the same time period.<\/p>\n

So, is this time different? These may be the most dangerous words in investing, but we believe it may be. AI is a big reason why. Earnings for EM are expected to outgrow the U.S. and developed international markets (represented by the MSCI EAFE) this year \u2014 and there probably isn\u2019t enough time for that to change given we\u2019re in fourth quarter earnings season. For the record, EM earnings are tracking to 16% in the fourth quarter, slightly ahead of the U.S. at 13%.<\/p>\n

In 2026, EM earnings are expected to grow 29%, more than double current earnings growth expectations for the U.S. at 14%. EM may miss those lofty expectations, but the avalanche of AI investment in Asia and increased focus on corporate governance, efficient capital allocation, and shareholder returns, including in China, South Korea, and India, position EM earnings and cash flows to potentially outgrow the U.S. as well as Europe and Japan in 2026.<\/p>\n

EM Earnings Growth Is Strong and Getting Stronger<\/h3>\n

Earnings growth (YoY, %)<\/p>\n

\"EM<\/p>\n

Source: LPL Research, FactSet 02\/05\/26
Disclosure: Earnings data based on MSCI EAFE, MSCI Emerging Markets, and S&P 500 Indexes. All indexes are unmanaged and cannot be invested in directly. Past performance is no guarantee of future results. Estimates may not materialize as predicted and are subject to change.<\/sub><\/p>\n

#3: Exposure to AI Boom in Asia<\/h2>\n

In what may be a surprise to some, the MSCI EM Index has as big an allocation to the technology sector as the S&P 500 at slightly over 30%. Not only is EM a play on AI, as China has made advances and is well positioned to benefit from the new technology, but much of the AI chips and hardware needed for AI data centers comes from Asia.<\/p>\n

Emerging Markets Index Is As Tech Heavy As the U.S.<\/h3>\n

\"sector<\/p>\n

As the accompanying chart illustrates, much of the heavy technology weighting in the EM index comes from Asia, where the top country weightings are China, Taiwan, Korea, and India.<\/p>\n

The Overwhelming Majority of the EM Index is Based in Asia<\/h3>\n

\"top<\/p>\n

#4: Technical Analysis Trends Are Compelling<\/h2>\n

Emerging markets opened 2026 with sustained momentum and notably low volatility…<\/p>\n

EM Has Broken Out on an Absolute and Relative Basis<\/h3>\n

\"EM<\/p>\n

#5: Attractive Valuations<\/h2>\n

We point out all the time that valuations are not good timing tools…<\/p>\n

Conclusion<\/h2>\n

We maintain our positive bias toward EM. LPL Research suggests investors maintain EM equities exposure at least in line with their targets and think about finding some dry powder to add more.<\/p>\n

Asset Allocation Insights<\/h2>\n

LPL\u2019s STAAC maintains its tactical neutral stance on equities…<\/p>\n

Jeffrey Buchbinder, Chief Equity Strategist, LPL Financial<\/p>\n

Adam Turnquist, Chief Technical Strategist, LPL Financial<\/p>\n

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