Rising tensions between the US and Europe, on show in Davos, have lit a fuse under customary fear trades such as gold and silver, which were already doing roaring business as inflation hedges. Developed markets, including the S&P 500, have also stumbled. Emerging markets, however, are on a roll. That suggests that some investors, at least, believe that the US will manage to navigate the dramas of its own making without crashing the global economy.
MSCI’s emerging market index has sprinted out of the gate, adding almost 6 per cent so far this year and reaching record highs. This follows on from a hot 2025: last year was the first in eight that emerging market stocks outperformed the US, with the MSCI EM benchmark gaining 31 per cent, against 16 per cent for the S&P 500.
True, not all of this reflects a sanguine view of US prospects. Emerging markets have been gaining favour partly as an alternative to US assets. Amid high equity valuations, investors are seeking to diversify their concentrated exposure to the world’s largest economy. Emerging market specialist Ashmore last week reported the first quarterly net inflow into its funds in more than four years and pointed to investor jitters over the US.