Remember when emerging markets were the investment nobody wanted to talk about at cocktail parties? Well, they're back with a vengeance. After ripping 34% higher in 2025, these markets aren't taking a breather. Country-specific ETFs are posting double-digit gains in 2026, and Wall Street analysts are scrambling to explain why this might actually stick around.

The Leaders Are Running Hot

If you've been sleeping on emerging markets, the numbers might wake you up. According to CountryETFTracker.com, U.S.-listed emerging market country ETFs are putting on a show.

South Korea is leading the charge with the iShares MSCI South Korea ETF (EWY) up a staggering 29.65% year-to-date. Peru comes in second with the iShares MSCI Peru and Global Exposure ETF (EPU) gaining 25.89%, while Brazil's iShares MSCI Brazil ETF (EWZ) climbs 20.93%.

Turkey and Colombia aren't far behind, posting gains of 20.69% and 17.31% respectively.

Here's the kicker: while the SPDR S&P 500 ETF (SPY) is basically treading water this year, the iShares MSCI Emerging Markets ETF (EEM) is already up about 10%. That's the kind of performance gap that makes portfolio managers rethink their allocations.

Five Forces Driving The Momentum

In a client note released Tuesday, LPL Financial analysts Jeff Buchbinder and Adam Turnquist outlined five specific reasons why emerging markets could keep outperforming. Let's break them down.

The Dollar Is Losing Its Grip

The U.S. Dollar Index is flirting with critical support levels, and LPL sees room for a 5% decline. The Federal Reserve might cut rates further, and the Trump administration has signaled support for a weaker dollar to help balance trade.

Why does this matter? A weaker dollar makes emerging market exports more competitive and reduces the burden of dollar-denominated debt. Central banks diversifying away from dollars and a shrinking U.S. trade deficit add more pressure. Sure, sticky inflation or a hawkish new Fed chair could trigger temporary bounces, but the trend looks clear.

Earnings Growth Is Finally Flipping

After years of lagging behind developed markets post-2008, emerging market earnings are staging a comeback. LPL forecasts 29% earnings growth for EM in 2026, compared to just 14% in the U.S. The fourth quarter of 2025 already showed 16% EM earnings growth versus 13% domestically.

This isn't just hype. Corporate governance improvements and better capital allocation across markets like China, India, and South Korea are making a real difference. Add in the AI boom, and you've got a genuine earnings acceleration story.

Asia Owns The AI Supply Chain

Here's something that might surprise you: the MSCI Emerging Markets Index has over 30% exposure to technology, matching the S&P 500. That includes companies directly tied to the AI infrastructure buildout, like Samsung Electronics and chipmakers across Taiwan and South Korea.

With global AI infrastructure investment projected to exceed $650 billion in 2026, emerging markets with deep manufacturing and tech capabilities are positioned to capture a meaningful slice of that spending. This isn't peripheral exposure. This is core infrastructure.

The Charts Are Breaking Out

The MSCI EM Index has pushed past its 2021 highs, and more than two-thirds of its components now trade above their 200-day moving average. The ratio versus the S&P 500 just hit a two-year high, signaling a shift in relative momentum.

According to LPL's Turnquist, this technical setup may confirm "a new relative uptrend" with staying power. Technical analysis doesn't predict the future, but it does tell you when sentiment is shifting.

They're Still Cheap

Despite the rally, emerging market stocks remain historically inexpensive. As of late 2025, EM traded at a 40% discount to U.S. stocks on a forward price-to-earnings basis.

Over the past 15 years, similar discounts didn't matter because fundamentals were weak. That's changed. The iShares Emerging Markets Ex China ETF (EMXC) is up 13.5% year-to-date, while EEM has gained 10.6%. Analysts now see strong earnings momentum driven by middle-class expansion, industrial exports, and an increasing share of global production.

Could This Actually Last?

Veteran strategist Ed Yardeni is buying the story. In an emailed note, he said recent EM gains signal "resilience of the global economy" despite Trump tariffs and ongoing geopolitical risks.

He's not saying U.S. exceptionalism is dead, but he does see international portfolios benefiting from rebalancing, especially given how dominant U.S. stocks have become in global indices.

"The big-picture story is that emerging markets have rapidly growing middle-class populations that are aspiring to become more prosperous," Yardeni said.

"Both industrial production and exports of emerging economies have increasingly exceeded those of the advanced economies," he added.

History suggests EM outperformance tends to come in extended cycles. Between 2003 and 2010, emerging market stocks led global equity markets. If the current setup holds with dollar weakness, superior earnings growth, and AI tailwinds, analysts believe this rally could stretch well beyond 2026.

The question isn't whether emerging markets can keep going. It's whether investors will actually stick around this time instead of bailing at the first sign of volatility. That's always been the real test.