Following the U.S. Supreme Court's decision to overturn the global tariff policies led by former President Donald Trump and rule the tariffs unlawful, assets in emerging markets have experienced another powerful surge. A key benchmark index tracking emerging market currencies erased its weekly losses, while a popular U.S.-listed Emerging Market Exchange Traded Fund (ETF) saw its price climb sharply to a new all-time high.
Michael Hartnett, a Bank of America equity strategist often referred to as "Wall Street's most accurate strategist," has recently emphasized that against the backdrop of a crumbling "American exceptionalism" narrative, a weaker U.S. dollar, and a shift in global growth momentum from the U.S. to broader international markets, emerging markets are positioned to continue outperforming the U.S. market and advance into a new bull cycle. After Trump proposed an alternative to his signature economic plan, the MSCI emerging markets currency index held its gains on Friday and completely reversed its weekly decline.
The iShares MSCI Emerging Markets ETF (EEM.US), managed by global asset management giant BlackRock with approximately $28 billion in assets, achieved a rare "ten consecutive days of gains," climbing strongly once again to a record high. Its trading volume was 36% above its 20-day average. Driven by the robust bull run of its top component, Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest chipmaker, and South Korean memory chip giants Samsung Electronics and SK Hynix, the iShares MSCI Emerging Markets ETF has repeatedly set new record highs. Its year-to-date gain for 2026 has reached 14%, significantly outperforming both the S&P 500 and the Nasdaq 100 indices.
Amid the themes of "American exceptionalism" fading, "selling U.S. assets," and the ongoing global artificial intelligence (AI) boom, the South Korean stock market, after a 75% surge in its benchmark index in 2025, continues to be among the "world's hottest markets" in 2026, with its key stock index up 40% year-to-date. Consequently, the emerging markets equity index, which includes core global AI supply chain companies and large-cap blue-chips like TSMC, Foxconn, SK Hynix, Samsung, Alibaba, and Tencent, is leading global equity indices. Global investors are channeling funds into emerging market funds at a record pace, reflecting a "global reallocation of capital." Meanwhile, core ETF assets focused on Asian sovereign currencies and bonds have also seen strong inflows this year.
The latest bullish catalyst for emerging markets—the Supreme Court's tariff ruling—"should be marginally positive for emerging market foreign exchange (EMFX), primarily because it underscores the high degree of uncertainty regarding U.S. government policy," said Alvaro Vivanco, an emerging markets macro strategist at Wells Fargo. "This promotes the theme of diversification." Although, following the ruling, former President Trump told reporters he would impose a 10% global tariff under Section 122 of the Trade Act of 1974, it remains unclear whether the U.S. government would need to refund tariffs already collected. The Supreme Court's decision pushed long-term U.S. Treasury yields significantly higher due to market concerns about a potential severe deterioration in the U.S. fiscal position from possible refunds, with traders reacting negatively as they assessed the risks of a widening budget deficit.
"A 10% Section 122 tariff baseline could be significantly lower than many current, higher equivalent tariff rates," said Dan Pan, a senior economist at Standard Chartered based in New York. Earlier in the day, traders digested a batch of data pointing to weak U.S. economic activity and persistent inflation. The latest U.S. Gross Domestic Product (GDP) growth for the fourth quarter was much slower than economists' consensus expectations, while a key underlying inflation gauge closely watched by the Federal Reserve also exceeded forecasts. These data points sent conflicting signals regarding the Fed's interest rate outlook, and traders continued to closely monitor the scale and timing of the Fed's next move. Despite ongoing U.S.-Iran tensions, most Wall Street strategists believe the situation will not escalate into a full-scale war that could derail the strong emerging markets rally seen since the start of the year. Trump said on Friday the U.S. government was considering limited military strikes against Iran.
With the Supreme Court's rejection of the Trump tariffs serving as the latest bullish catalyst, the benchmark emerging markets equity index posted a significant gain for the second consecutive week, extending a powerful rebound driven by core companies in the AI computing supply chain. "The fundamental drivers for the emerging markets equity index will largely remain intact," said Wolf von Rotberg, an equity strategist at J. Safra Sarasin. "The record expansion of AI capital expenditure by U.S. hyperscalers strongly supports their demand for AI computing infrastructure in 2026, which is also a driver for rising metal prices."
The emerging markets rally is far from over. Michael Hartnett, who coined the term "Magnificent Seven" and has successfully predicted both the U.S. tech bull market and emerging market trends in recent years, has repeatedly stated this year that the next global equity bull market will be led by emerging markets and U.S. small-cap stocks. As policy uncertainty surrounding tariffs and fiscal policy from the Trump administration causes some large investors to retreat from U.S. markets, coupled with high U.S. equity valuations and excessive market concentration, and with a weaker U.S. dollar benefiting emerging market debt servicing and returns, the narratives of "American exceptionalism" fading and "selling U.S. assets" are resurfacing, prompting increased demand for diversified allocations. The global rotation of funds into emerging markets that began in 2025 is likely to continue—data shows the MSCI Emerging Markets Index significantly outperformed developed markets in 2025, marking its strongest relative performance since 2017.
Hartnett has consistently emphasized that global asset allocation must shift from heavy reliance on U.S. tech giants towards emerging market equities, commodities, and gold. He highlights the excessive concentration in U.S. tech stocks and rising valuation bubble risks in AI-related tech shares, while arguing that emerging markets and international assets offer more attractive valuations and growth prospects—particularly in a scenario of a reversal in the U.S. dollar cycle. A recent institutional asset allocation report from another Wall Street giant, Goldman Sachs, also indicates that global market funds are shifting their focus from U.S. equities/U.S. dollar assets towards global equities, particularly emerging market stocks, suggesting this is more than just a short-term rotation trend. This optimistic outlook on emerging markets from Wall Street strategists aligns closely with the market strategy of "selling U.S. assets and seeking global growth opportunities," widely interpreted by investors as part of a global capital rebalancing process involving "de-dollarization/selling U.S. assets."
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