Investment banks on Wall Street are focusing on emerging market stock markets. After the tariff war triggered by U.S. President Donald Trump, a 'triple' decline phenomenon has emerged, with U.S. stock prices, bonds, and dollar value all falling, while emerging market stocks are recording high growth rates.
On the 18th (local time), Bloomberg reported that "Morgan Stanley, Bank of America (BoA), AQR, and Franklin Templeton see it as time for emerging market stocks to counterattack and are placing bets," stating that "emerging market investors on Wall Street, who have been sidelined watching U.S. stocks surge for years, are now achieving better revenue."
According to Bloomberg, a total of $1.84 billion (approximately 2.5718 trillion won) flowed into U.S. exchange-traded funds (ETFs) investing in emerging economies or specific emerging nations during the second week of May. This figure represents an increase of more than double compared to the previous week.
Emerging market revenues are also high. On the 16th, Bloomberg reported that the MSCI Emerging Markets Index, excluding China, has risen 20% from its low in April, indicating signs of breaking through a two-decade long trading range. The MSCI index is a major benchmark that divides the global market into developed countries, emerging markets, and frontier markets. During the same period, the U.S. S&P 500 index showed almost no change.
Michael Hartnett, chief investment strategist at BoA, assessed the emerging market as the "next bull market." AQR also projected that emerging market stocks will achieve an average annual revenue of about 6% in local currency terms over the next 5 to 10 years, which is a higher revenue than the approximately 4% rise expected for U.S. stocks in U.S. dollars.
Despite a recent rebound in the U.S. S&P 500 index, it showed almost no change year-to-date based on last Friday's closing price, while the emerging market index rose about 10%. Bloomberg evaluated that "this trend raises expectations that the 'time of frustration' for emerging market stocks, which only increased 7% while U.S. stocks soared over 400% in the past 15 years, may be coming to an end."
Emerging markets of interest to Wall Street include China, India, South Korea, Turkey, and Saudi Arabia. These countries are reported to have lower debt ratios compared to developed countries. Chris Tann, a strategic investor at Franklin Templeton, noted that "major emerging countries have low external debt ratios and solid fundamentals in terms of debt-to-GDP ratios."
The rise of emerging markets is not unrelated to America's 'triple decline.' The U.S. S&P 500 index is highly volatile like a rollercoaster, the dollar is showing weakness, and questions are being raised about the safe asset status of U.S. government bonds. In particular, after President Trump's tariff war, Moody's, one of the three major global credit rating agencies, downgraded the U.S. credit rating from 'Aaa' to 'Aa1', increasing investors' doubts about the growth prospects of the U.S. market.
Emerging markets are becoming a good alternative for investors seeking to maximize revenues while taking on higher risks compared to Japan, Germany, and the European Union (EU). In particular, there is increased interest in domestic-oriented sectors such as finance and healthcare, which are relatively free from the tariff war. Two years ago, Gitania Khandari, chief investment officer (CIO) at Morgan Stanley, declared the commencement of the 'emerging market era,' stating, "Finally, a catalyst for (the rapid growth of emerging markets) has appeared."