Investors pour record funds into emerging markets as dollar weakens

The growth into emerging markets shows that investors are piling into those equities at a record pace, with MSCI exchange-traded funds attracting more than $20.6 billion in inflows last month. January’s inflows mark the 12th consecutive monthly inflows for the MSCI emerging markets.

The recent inflows into the MSCI Emerging Market Index also nearly tripled the prior two months and doubled the previous peak set in 2018. The MSCI Emerging Markets Index, which covers 24-27 emerging markets, also attracted $33.57 billion in inflows last year. 

Heightened geopolitical tensions drive growth in emerging markets

The MSCI EM accounted for 43% of the total inflows into emerging markets last month. The fund also saw its largest monthly intake since its inception in 2012. The ETF has also surged more than 8.8% in January, its best start to a year since 2012.

JPMorgan also reported that emerging-market equity funds posted one of their largest weekly inflows on record last week. Those equities have surged above $39 billion year-to-date. Emerging North and Southeast Asian equities also grew to around $3.3 billion last month, up about 6.5%.

Ray Sharma-Ong, Deputy Global Head of Multi-Asset Bespoke Solutions at Aberdeen Investments, argued that emerging Asian markets will outperform the broader emerging markets this year despite heightened geopolitical uncertainty. He believes growth will mainly be driven by AI spending, stable credit solutions, and China’s anchoring role in the region.

The Association of Investment Companies (AIC) also noted that several global markets, especially emerging markets, outperformed U.S. equities in 2025. The agency believes that several non-U.S. investments could continue to grow under Trump’s administration. According to the AIC, emerging markets are expected to be the best-performing region in 2026.

The shift in demand towards Emerging Markets comes as geopolitical uncertainty eased this year, driven by U.S. President Donald Trump’s decision to pause tariff threats against Europe. As tensions persist over the Middle East and U.S. actions in Latin America, investors are shifting to emerging markets, which offer better risk-adjusted returns.  

Brodie-Smith noted that strong earnings growth and AI-related spending are continuing to push U.S. equities higher. She also noted that European indices had their best year since 2021 as investors shifted from expensive U.S. firms in search of better valuations. The AIC official added that emerging markets benefited from a weakening dollar and an influx of capital caused by diversification from U.S. investors.

Weaker greenback drives investors toward emerging markets

The U.S. dollar plummeted more than 9% in 2025 against a basket of developed nations, while the EM currency index surged more than 7%, the most since 2017. The expectation of continued weakness in the greenback is driving investors to other markets, with the S&P 500 surging 16.4% last year and the EM index rising 30.6%.

Although the greenback bounced back in recent days, driven by Trump’s nomination of Kevin Warsh as the next U.S. Federal Reserve Chair, it continues to drop significantly. Jason Hollands, Managing Director of Bestinvest, argued that there are good reasons to be overweight emerging markets this year because a weaker dollar is a de facto stimulus for Asia and emerging markets. He pointed to the Ashoka WhiteOak Emerging Markets Trust and the Templeton Emerging Markets Investment Trust (TEMIT) as having growth potential this year.

Tom Poynton, Executive Director at Baron & Grant, noted that precious metals have also benefited from a weaker U.S. dollar. He argued that gold reached successive record highs as investors sought protection against currency debasement and geopolitical risk.

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