Emerging Markets Just Hit All-Time Highs — Here's Whether You Should Invest Now
The MSCI Emerging Markets Index just hit an all-time high — and most investors under 35 have virtually zero exposure to it.
While the average young American investor holds a mix of S&P 500 index funds, a few tech names, and maybe some cash in a high-yield savings account, a massive global rally has been quietly running without them. Emerging market equities are outperforming expectations of a conflict-driven downturn, shrugging off war risk premiums, and printing record levels. Meanwhile, at home, core inflation is sitting at 3.2%, first-quarter GDP growth disappointed at just 2%, and the Fed is locked in a standoff over what to do next.
The question isn’t whether emerging markets are interesting right now. They clearly are. The question is: should you add them to your portfolio, how much, and through what vehicle? Let’s break it down.
What’s Actually Driving the Emerging Markets Rally
Before you act on any headline, you need to understand why something is moving. In this case, the MSCI Emerging Markets Index surge is being driven by a confluence of two major forces:
1. The AI infrastructure boom is global, not American.
The narrative around AI spending has been largely framed around U.S. companies — Nvidia, Microsoft, Meta. But the hardware buildout is happening worldwide. Countries like Taiwan, South Korea, India, and Brazil are seeing massive capital inflows tied to AI-adjacent manufacturing, semiconductor supply chains, and data infrastructure. Companies like Nebius Group jumping 11.8% on an AI acquisition news day is one data point in a broader global trend.
2. Oil-exporting emerging economies are flush with cash.
Despite — or more accurately, because of — the U.S.-Iran conflict and the Strait of Hormuz disruption, oil prices have surged. That’s painful for consumers in importing nations, but it’s a windfall for emerging market oil exporters in the Gulf, Africa, and Latin America. Higher oil revenues mean stronger sovereign balance sheets, more consumer spending, and higher corporate profits in those economies.
Those two tailwinds — tech-driven manufacturing and energy windfalls — are enough to more than offset the headline risk that usually scares investors away from developing markets.
Why Most Young Investors Are Massively Underweight Here
If you built your portfolio using most beginner investing content, you probably own one of three things: a total U.S. market fund, an S&P 500 fund, or a collection of individual U.S. tech stocks. That’s not a bad start — but it means you have almost no exposure to roughly 45% of global GDP.
The MSCI Emerging Markets Index covers 24 countries and over 1,400 companies. The top holdings include giants in China, India, Taiwan, South Korea, Brazil, and Saudi Arabia. When you own only the S&P 500, you own none of that.
This creates a home country bias — a well-documented behavioral tendency where investors overweight the markets they live in and follow. Studies consistently show that U.S. investors hold upward of 70–80% of their equity exposure in U.S. stocks, despite the U.S. representing roughly 60% of global market capitalization by some measures, and far less of global economic output by others.
For the long-term wealth builder, that’s a meaningful diversification gap.
The Case For Adding Emerging Markets to Your Portfolio Right Now
Let’s be direct: buying after an all-time high feels uncomfortable. That instinct is understandable, but it’s also largely unfounded in the data. All-time highs in equity markets are not reliable sell signals — in fact, markets have historically gone on to produce above-average returns in the 12 months following a new all-time high roughly 70% of the time, according to research from multiple major asset managers.
Here’s why the structural case for emerging markets is strong for investors in their 20s and 30s specifically:
- Demographics: Countries like India, Nigeria, Indonesia, and Vietnam have extremely young, growing populations — the same demographic engine that drove U.S. wealth creation in the 20th century.
- Middle class expansion: McKinsey has projected that Asia alone will account for two-thirds of the global middle class by 2030. More middle-class consumers means more corporate revenue.
- Valuation discount: Even after this rally, many emerging market indices trade at 10–14x forward earnings, compared to the S&P 500’s current range of 20–22x. You are buying more earnings per dollar invested.
- Currency diversification: Holding some assets denominated in or tied to foreign economies reduces your exposure to U.S. dollar weakness — a real concern in an environment where the U.S. is running persistent deficits and inflation hasn’t fully been tamed.
If your investing time horizon is 10, 20, or 30 years — and it should be — the AI tailwind, demographic growth, and valuation gap make a compelling case for at least some emerging markets exposure. If you’re still building the foundation of your investment strategy, our complete wealth-building guide covers how to structure your portfolio from scratch.
The Risks You Absolutely Cannot Ignore
Emerging markets are not a free lunch. Here are the legitimate risks you need to price in:
Political and Geopolitical Risk
The same war dynamics that are boosting oil exporters could escalate unpredictably. Sanctions, trade route closures, and military conflict can crater specific country exposures overnight. If you hold a broadly diversified emerging markets ETF, this risk is spread across 24 countries — but it doesn’t disappear.
Currency Risk
When you invest in emerging markets through a U.S.-listed ETF, the underlying assets are in local currencies. If the Brazilian real or South African rand depreciates sharply against the dollar, your returns suffer even if the local stock market is up.
Liquidity and Governance Risk
Smaller markets in the index can have lower trading volume and weaker shareholder protections than U.S. markets. This matters less in a broad index fund but is critical if you’re picking individual stocks or country-specific ETFs.
Volatility
Emerging markets historically have 20–30% higher volatility than U.S. equities. In practical terms, a 20% drawdown in your S&P 500 fund might coincide with a 30–35% drawdown in your emerging markets allocation. You need to be prepared to hold through that without panic-selling.
How to Actually Get Exposure: The Practical Playbook
Assuming you’ve decided some allocation makes sense, here’s how to do it without overcomplicating your portfolio.
Option 1: A Broad Emerging Markets ETF (Best for Most People)
For most investors, the right move is a single, low-cost, broadly diversified emerging markets ETF. Several major providers offer funds tracking the MSCI Emerging Markets Index or similar benchmarks, with expense ratios in the 0.08%–0.14% range. Look for:
- Low expense ratio (under 0.20%)
- High assets under management (AUM) for liquidity
- Exposure to at least 15–20 countries
- No heavy single-country concentration above 30–35% (watch out for funds that are effectively just China or just tech)
The WisdomTree Emerging Markets High Dividend Fund (DEM) has been getting attention specifically for income-oriented investors — it targets high-dividend payers in emerging markets, which gives you exposure to the oil-exporting windfall story in particular. The trade-off is it’s more concentrated and has a higher expense ratio (~0.63%) than a plain vanilla index fund. Worth considering if you want yield along with growth exposure, but not a replacement for a core broad index position.
Option 2: A Total International Fund That Includes Emerging Markets
If you don’t want to manage a separate emerging markets slice, a total international stock market fund typically allocates 25–30% of its holdings to emerging markets automatically, with the balance in developed international markets (Europe, Japan, Australia, etc.). This is simpler and still gets you meaningful exposure without requiring an additional fund.
Option 3: Country-Specific or Thematic ETFs (Higher Risk, Higher Potential)
If you have conviction on a specific story — say, India’s AI infrastructure growth or Brazil’s energy sector — single-country ETFs let you concentrate there. This comes with meaningfully higher risk. Treat these as satellite positions (5–10% of your total portfolio at most), not core holdings. Learn how to think about balancing index funds against higher-conviction positions here.
How Much Should You Allocate?
There’s no universal right answer, but here are two evidence-based frameworks:
Market-weight approach: Global market cap weighting suggests roughly 40% international exposure (developed + emerging). Of that international slice, emerging markets represent about 30–35%. So a truly market-weighted global portfolio would have roughly 12–15% in emerging markets.
Pragmatic young-investor approach: If you’re starting from zero international exposure, a reasonable target is 10–20% of your equity allocation in a broad international fund (which includes emerging markets), building toward that over 12–24 months through regular contributions rather than a lump-sum move. Dollar-cost averaging works whether you’re investing $100 or $1,000 a month.
What you want to avoid is either extreme: zero emerging markets exposure (missing a major growth driver) or panic-buying 40% emerging markets because of a headline (taking on more volatility than your stomach can handle).
The Inflation and Rate Context Matters Here
One more layer worth understanding: the U.S. economic backdrop right now is actually a mild tailwind for emerging markets specifically.
Core inflation at 3.2% and a Fed that’s signaling it may be done hiking (despite internal dissent) means the U.S. dollar is unlikely to strengthen dramatically from here. A weaker or flat dollar is historically good for emerging market assets, because those economies earn more in local-currency terms when the dollar isn’t surging. The dollar’s trajectory in the next 12–18 months is one of the single biggest variables for your emerging markets returns. Keep an eye on it. For more on how the current inflation environment should shape your overall investment decisions, see our volatility investing guide.
The Bottom Line
Emerging markets hitting all-time highs is not a sign to avoid them — it’s a sign the market is recognizing what patient, globally-minded investors have been positioning for. The AI infrastructure boom, the oil windfall for exporting nations, and still-compelling valuations relative to U.S. equities make a solid case for meaningful emerging markets exposure in a long-term portfolio.
The action steps are straightforward:
- Audit your current portfolio. How much international exposure do you actually have? If it’s under 10% of your equity allocation, you’re significantly home-biased.
- Choose a low-cost, broad vehicle. Don’t pay more than 0.20% for a core emerging markets index fund.
- Decide on your target allocation and get there gradually. 10–15% of your equity portfolio is a reasonable target for most investors in their 20s and 30s.
- Don’t chase performance. If you’re adding emerging markets because they’re up, make sure you also understand you’ll hold them through the inevitable 25–30% drawdown that will come at some point.
- Rebalance annually. Emerging markets are volatile enough that a good run can push your allocation well above target. Trimming winners and rebalancing is how you systematically buy low and sell high.
The world’s biggest economic stories right now are playing out in places that aren’t on the S&P 500. Your portfolio should reflect that.
The Dropout Millions Team
Sources & Data
- The MSCI Emerging Markets Index is a widely-used benchmark for emerging market equity performance — U.S. Securities and Exchange Commission
- Emerging market investments carry different risk profiles than developed market investments — Investor.gov - SEC’s Office of Investor Education and Advocacy
- Investment performance data and historical returns should be reviewed before making portfolio allocation decisions — U.S. Securities and Exchange Commission
