Emerging-market stocks are riding a 30% rally this year on soaring profits—with AI-driven tech firms leading the charge, but broader sectors now joining the rebound. For the first time since April 2022, companies in the MSCI EM Index have beaten earnings estimates, signaling a shift from speculative momentum to fundamental strength, according to Business Times. The question now: Is this a sustainable inflection point, or just another tech-fueled blip?
Why Earnings Are the Real Story Behind the Rally
Last week’s profit reports from Asia’s tech giants delivered the kind of numbers that usually only Silicon Valley can muster. South Korea’s SK Hynix reported first-quarter profits 43% above estimates, Samsung Electronics beat forecasts by 16%, and Taiwan Semiconductor Manufacturing Co. exceeded expectations by 5.7%, all according to Financial Post. But the surprise isn’t just in semiconductors: Indian Oil Corp. topped estimates by 33%, while Brazilian electricity producer Eneva SA posted a 44% beat.
What’s different this time? The earnings growth isn’t confined to AI-related stocks—it’s spreading across sectors, from energy to financials. The MSCI EM Index’s weighted average earnings per share rose to 95.1 points in the 12 months through May, surpassing analysts’ blended-forward estimates of 94.6 points made a year ago, Business Times reported. That’s the first time since 2022 that EM profits have consistently outpaced expectations.
Here’s the kicker: The rally isn’t just about stock prices—it’s about actual earnings growth. Ninety One UK’s Archie Hart called it a “genuine inflection point,” noting that the market is finally being validated by fundamentals rather than speculative froth. “The market is finally being validated by fundamentals rather than running ahead of them,” Hart said.
The AI Dividend vs. the Rest of the Market
There’s a catch: The outperformance is still concentrated. Asian tech firms are beating expectations by a wider margin than the rest of the emerging-market universe, where surprises are more modest or negative. Energy companies started crossing the threshold this quarter, but financials only did so at the end of 2025, according to Business Times.
Morgan Stanley’s Jitania Kandhari put it bluntly: “Performance across different regions will likely continue to vary, but the direction of travel across virtually all of them is now positive, which has not been true for most of the past decade.” The concern? Concentration risk. If AI spending cools—or if geopolitical tensions flare up again—could the rally stall?
One thing is clear: The tech discount is still steep. An index of US semiconductor equipment makers trades at 46 times estimated forward earnings, compared with just 12.3 times for the MSCI EM Information Technology Index, Business Times reported. That’s a gap that could attract more asset managers—if they believe the momentum lasts.
For more on this story, see Trump Signals Iran War, Stocks Plummet 1.3% Overnight.
What Happens Next: The Dollar, Deficits, and AI’s Long-Term Play
The bull case rests on three pillars: a softer dollar, ongoing deficit spending in major economies, and a multi-year AI and infrastructure capex cycle. “A softer dollar, ongoing deficit spending in major economies, and a multi-year AI and infrastructure capex cycle continue to create a constructive backdrop for emerging markets,” Hart said.
But there’s a twist: Even as stocks rally, currencies aren’t keeping pace. Taiwan’s index hit 47,871.19 while its dollar weakened to 1,538.8 per US dollar, according to Finimize. The disconnect? Many of the biggest winners—semiconductor and AI supply-chain exporters—collect dollar-linked revenue, while their home currencies move with broader “risk-on, risk-off” sentiment. That means local stock gains can look smaller when converted back to dollars, a headache for unhedged global investors.
Still, the fundamentals are stacking up. Emerging markets have been in the red for years—profits fell 25% between 2022 and 2024 as higher interest rates sapped growth, Business Times reported. Now, with AI spending and China’s stimulus finally kicking in, the tide may have turned.
Who Wins, Who Loses, and What’s Still Uncertain
The winners are clear: Asian tech firms, energy producers, and investors who’ve been underweight EM stocks. A 5% shift from US portfolio weightings could translate into a 30% increase in EM allocations, according to Hart’s calculations. But the losers? Those betting on a quick reversal—or those who missed the boat.
There’s still narrowness under the hood. “There is still narrowness under the hood,” warned Ashish Chugh, though he added that much of the EPS growth will come from tech. The question is whether this becomes a broad-based rally or another tech-led bubble.
One thing is certain: The next 30 days will be critical. If earnings keep surprising, more asset managers may follow. If AI spending slows—or if the dollar strengthens—could the rally lose steam? The answer may lie in the numbers due next month.
The Bottom Line: Is This the Start of a New Bull Market?
The data suggests emerging markets are finally turning a corner. For the first time in years, profits are beating estimates, AI spending is driving growth, and the fundamentals are aligning. But the rally isn’t without risks—concentration in tech, currency weakness, and geopolitical uncertainties all loom.
The bigger question: Is this the start of a new bull market, or just another tech-fueled blip? The answer may depend on whether the earnings momentum spreads beyond Asia—and whether investors can stomach the currency volatility that comes with it.
One thing’s for sure: The next chapter in emerging markets won’t be written by AI alone.
Find more reporting in our Business section.
