Emerging-market stocks are back on top in April after punishing Iran selloff. Why they can keep on climbing.

MW Emerging-market stocks are back on top in April after punishing Iran selloff. Why they can keep on climbing.

By Christine Idzelis

Emerging-market stocks sport attractive valuations, and strong exposure to AI, strategists say

A popular ETF that tracks stocks in emerging markets has surged in April - but the ETF is still trailing the S&P 500 since the start of the Iran conflict.

Emerging-markets stocks are still beating their U.S. rivals this year, even after a recent bout of volatility triggered a punishing but mercifully short-lived selloff.

The iShares Core MSCI Emerging Markets ETF IEMG, a U.S.-listed exchange-traded fund that tracks an index of emerging-markets stocks, has surged 13.7% in 2026 through Tuesday, FactSet data show. That trounces the 3.2% gain for the S&P 500 SPX so far this year. The S&P 500 had briefly outperformed during the March selloff, but since the start of April, the emerging-markets ETF has been back on top, according to FactSet data. In developed markets, Japan's Nikkei 225 Index JP:NIK has also outperformed U.S. rivals so far this month. In both cases, these gains have helped propel them ahead of the U.S. stock market so far this year.

That doesn't mean stocks in the U.S. aren't holding up. The rebound of major stock indexes like the S&P 500 and Nasdaq Composite COMP over the past three weeks has been extremely strong.

See: Stocks usually take the escalator up and the elevator down. In this latest rebound, it is happening in reverse.

The U.S. is more insulated from disruptions to oil and gas shipping in the Strait of Hormuz. Compared with other parts of the world, the U.S. is a net energy exporter.

In a new investment outlook, strategists at BlackRock compared the measured performance of major global equity markets with their economies' dependence on oil and natural-gas imports via the strait. In a chart, the strategists showed that some markets with the greatest need for energy imports were still outperforming the U.S. this year as recently as April 14, even if they had lagged behind since the end of February. The U.S. and Israel launched their attack on Iran on Feb. 28.

BLACKROCK

For now, the "U.S. remains in a better position than many other countries, especially those that are larger oil importers," said Gargi Chaudhuri, chief investment and portfolio strategist at BlackRock in a phone interview. "The U.S. is a little bit more insulated than many of the regions around the world, certainly Europe."

Looking out over the next few months, Chaudhuri's strongest conviction is U.S. large-cap stocks, particularly those poised to benefit from AI. But for those inclined to diversify outside of the U.S., Chaudhuri said that she would favor emerging-market equities, citing their exposure to the ongoing AI build-out and strong earnings growth.

Since the end of February, the iShares Core MSCI Emerging Markets ETF has fallen a modest 0.4%, while the S&P 500 has climbed 2.7%, according to FactSet data on Tuesday. The iShares MSCI ACWI ex U.S. ETF ACWX , which tracks stocks in both emerging and developed markets but excludes the U.S., has dropped 2.3% since the end of February, FactSet data showed through Tuesday.

"In March, you certainly did see international pullback as many components of EM are energy importers, especially as the dollar DXY started moving higher," said Chaudhuri.

Earnings growth

One reason Chaudhuri finds EM stocks so compelling is their strong earnings growth. The chart below shows that, as of March 31, much of the gains in these stocks this year have been driven by improving profits, rather than investors' willingness to pay a higher premium in the market.

BLACKROCK

Strong earnings are one of the main reasons the iShares Core MSCI Emerging Markets ETF has surged 9.6% so far in April. The S&P 500 has also seen a strong rally this month, rebounding around 8.2% through Tuesday after booking losses in March, according to FactSet data. Analysts have also been revising their earnings forecasts for many U.S. companies higher.

More broadly, though, international stocks have trailed the U.S. this month, with the iShares MSCI ACWI ex U.S. ETF up by 6.3%.

The S&P 500 appears to have made a "durable breakout" after the stock market's "generals," or megacap stocks, also known as Big Tech, recently resumed their leadership on expectations for growth from AI, Adam Turnquist, chief technical strategist at LPL Financial, said in a phone interview.

He pointed to the S&P 500 pushing past 7,000, after failing in February to close above that milestone as the index lacked leadership from Big Tech. "Big Tech is back," Turnquist said. "It's hard for the international market to keep outperforming Big Tech" when those megacap stocks are "working," he said, adding that the Big Tech "growth story is still there."

Analysts expect the S&P 500's biggest sector, information technology, to see strong earnings growth this year.

Information-technology companies in the S&P 500 are now expected to increase earnings by 38% year-over-year in 2026, versus expectations of 24% at the start of the year, according to BlackRock's Chaudhuri. Her spring investment outlook report shows that the "IT sector alone is expected to account for 63% of the S&P 500's 2026 earnings growth."

But U.S. tech stocks aren't the only ones expected to benefit from the latest technological innovations. Emerging stocks have "a huge amount of focus on that AI story," Chaudhuri said, adding that about 42% of the iShares Core MSCI Emerging Markets ETF has allocations to tech and artificial intelligence. EM earnings have been revised "meaningfully" higher, providing a tailwind and a way to diversify exposure to AI beyond the U.S., she said.

"Investors have long been underweight EM," according to Chaudhuri.

Meanwhile, emerging-markets stocks broadly appear "very cheap on a valuation basis," according to Turnquist.

Turnquist pointed to Taiwan and South Korea as key markets poised to benefit from AI. "It's no longer just a China story" in emerging markets, he said.

The U.S. stock market closed lower Tuesday, with the S&P 500, Dow Jones Industrial Average DJIA and technology-heavy Nasdaq Composite Index COMP all falling. The S&P 500 ended at 7,064.01, just 0.9% below its record closing high on April 17, according to Dow Jones Market Data.

-Christine Idzelis

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April 22, 2026 08:03 ET (12:03 GMT)

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