It’s time to give emerging markets stocks some credit. As of July 14, the widely followed MSCI Emerging Markets Index is up 16. 7% year-to-date, or more than double the upside delivered by the S&P 500.

Should that hold up, 2025 is poised to become the first year since the emerging markets gauge beat the S&P 500. Yes, it’s been that rough of a stretch for developing world equities. Compounding the woes of emerging markets stocks in recent years have been numerous annual occasions in which the gap was so wide between those stocks and domestic counterparts that advisors and other market participants simply had no good reason to stray outside the U. S. , let alone embrace the volatility that accompanies investments in developing economies.

However, as confirmed by the aforementioned year-to-date returns, the tide is turning – a shift that’s all the more impressive when factoring in trade calamity authored by the White House. On that note, emerging markets’ year-to-date showing is all the more awe-inspiring when considering China, the primary target of the Trump Administration’s trade barbs, accounts for 30ish percent of many of the most widely observed baskets of emerging markets stocks. There’s more to the story and it could bode well for this asset class into year-end.

This Emerging Markets Movie Has Been Seen Before

It’s often said in investing that “history doesn’t always repeat, but it often rhymes. ” Well, the 2025 showing offered by emerging markets stocks is very much a sequel to what was seen eight years ago under the current president.

“During 2017, EM outperformed all four quarters, despite U. S. tariffs and trade policy uncertainty,” observes Michelle Gibley of Charles Schwab. “A potential reason for this outperformance is that sentiment toward EM may have been low going into the first year of both Trump administrations, but global growth held up better than expected and the U. S. dollar fell. ”

Undoubtedly, the sagging greenback is efficacious for developing economy equities. Historically, that’s been the case and a big reason why that’s true is because so many countries with the emerging markets label are large issuers of dollar-denominate debt – both corporate and sovereign.

Add to that, if the Federal Reserve acts at the behest of the White House and/or if Chairman Jerome Powell resigns, that could give further ballast to emerging markets assets because it could further weaken the dollar, those lowering financing costs for developing world issuers of dollar-denominated bonds.

EM Changes Matter

Take it from someone that’s been analyzing and writing about exchange traded funds for over 17 years: there was a time when it was nearly impossible to discuss the emerging markets investment thesis without mentioning commodities prices. The reasoning was simple. Many of the largest country weights in indexes like the MSCI Emerging Markets are either major commodities producers (Brazil, South Africa) or significant importers (China, India). However, index exposure to commodities has changed and it could usher in a more promising era of emerging markets investing.

“Historically, EM stocks were considered to be tied to the increased use of commodities,” adds Gibley. “However, the sector composition of the MSCI Emerging Market Index has changed over time—it's no longer your grandfather's index. Energy and Materials, both commodity sectors, have fallen from a combined 25% weight in the EM Index in July 2005 to roughly 10% 20 years later. ”

That’s accurate. Today, technology alone accounts for nearly a quarter of the MSCI Emerging Markets Index and the 12. 48% the gauge devotes to consumer cyclical stocks is 200 basis points more than that sector’s weight in the S&P 500. Bottom line: emerging markets are behaving today much as they did in 2017 for many of the same reasons, but looking further out, the stage could be set for better long-term performances if interest rates declines and because commodities dependence retreated.