Global Capital Performs "Great Migration"! AI Infrastructure Boom and Weak Dollar Ignite Emerging Market Bullishness

Emerging market stocks are gradually becoming one of the hottest investment and trading themes in the global stock markets this year. Top fund managers worldwide are increasingly favoring broad emerging market assets—including stocks, bonds, and sovereign currencies. Citigroup’s equity analysts stated that fund managers from the world’s largest asset management institutions have significantly increased their long positions in Asian, Latin American, European, Middle Eastern, and African emerging market stocks.

After reviewing publicly available outlooks from investment funds, analysts at Citigroup Inc., the world’s largest asset manager managing over $20 trillion, said they are heavily buying emerging market stocks, ETFs, local currency bonds, and some credit assets, betting on strong global economic growth, the benefits of the global AI infrastructure boom, highly concentrated computing power chains, and a weakening dollar that will favor emerging markets.

This shift also reflects the more uncertain investment environment for developed market stocks and bonds, mainly due to policy uncertainties and concerns over fiscal expansion, which have suppressed bullish sentiment. Long-term yields on sovereign bonds from the US, Japan, and Germany continue to rise. The MSCI Emerging Markets Index remains at record highs and has outperformed US and developed market indices significantly this year, with trading volumes of related ETFs (emerging market equity ETFs) also surging.

Following the U.S. Supreme Court’s reversal of the global reciprocal tariffs led by President Donald Trump and ruling them illegal, emerging market assets have experienced a strong rally. The iShares MSCI Emerging Markets ETF (EEM.US), managed by BlackRock with a total asset value of $29 billion, has hit new all-time highs, rising 16% this year. Driven by the strong rally of core stocks like TSMC, the world’s largest chip manufacturer, and South Korea’s giants Samsung Electronics and SK Hynix, the ETF’s price has repeatedly reached new highs, significantly outperforming the S&P 500.

Under the narratives of “American exceptionalism” and “selling off America,” along with the booming global AI trend, South Korea’s stock market remains one of the “craziest markets” in 2026 after a 75% surge in its benchmark index in 2025. The Korean benchmark index has already gained 50% this year. The emerging market stock indices that include core AI supply chain companies like TSMC, Hon Hai, SK Hynix, Samsung, Alibaba, and Tencent are leading global stock markets. Investors worldwide are pouring record amounts of capital into emerging market funds, reflecting a “global capital reallocation.” Meanwhile, ETFs focused on Asian sovereign currencies and bonds have also seen strong fund inflows this year.

Michael Hartnett, a U.S. bank strategist known as the “most accurate Wall Street strategist,” has repeatedly emphasized that as the “American exceptionalism” narrative collapses and the dollar weakens, with global growth shifting focus from the U.S., emerging markets are expected to continue outperforming U.S. markets and enter a new bull cycle.

Citigroup: Top Global Fund Managers Increasingly Favor Emerging Market Assets

Citigroup’s equity analysts said fund managers have significantly increased their long positions in Asian, Latin American, European, Middle Eastern, and African emerging market stocks. They favor emerging market bonds as their preferred long-duration assets, contrasting sharply with their short positions on U.S. Treasuries and core European sovereign bonds. Citi noted that in the credit markets, emerging market corporate debt is the most overweighted, while U.S. investment-grade bonds remain a popular underweight or reduction target.

Despite recent global market shocks caused by fears that AI could disrupt key sectors of the global economy, emerging market assets continue to perform well. The MSCI Emerging Markets Index rose by 1% on Thursday, reaching a new all-time high, boosted by strong earnings reports from Nvidia, the core AI chipmaker, and the weakening dollar.

The current stock trading environment favors semiconductor and AI infrastructure stocks over software stocks, most of which are based in emerging Asian markets. Citrini Research recently released its “2028 AI Doomsday Prediction,” envisioning a dystopian future shaped by AI, where despite productivity surges, white-collar jobs are thoroughly disrupted, leading to a “global economic plague” and market panic.

This “AI prosperity crisis memo” from the future reinforces a bet: Asia, home to core chip manufacturers like TSMC and numerous other chip and AI infrastructure companies such as Hon Hai, SK Hynix, and Samsung, will be the biggest winner of the “AI disruption” trend. In contrast, the U.S. tech sector, with its high software and asset-light exposure, faces turbulence.

The concentration of leading-edge chip manufacturers, high-performance AI server contract manufacturers, and AI data center hardware suppliers—plus recent listings like Zhipu and MiniMax in Hong Kong, closely linked to AI large models—are increasingly attracting global investors to Asian tech stocks.

The strongest current theme in AI investment is undoubtedly the “supply-side constrained + high technical barriers” in AI infrastructure manufacturing and foundry—such as advanced process nodes, advanced packaging, HBM/high-end server storage, critical power, liquid cooling, and thermal management equipment. These components shift AI’s unit economics from “software seats” to “compute and energy per token,” and most of these are concentrated in Asia.

As shown in the chart, Asian stock markets have had the best start ever relative to U.S. markets, with data up to February 23 showing year-to-date returns. The MSCI Asia Pacific Index was launched on December 1, 1998.

In terms of broad emerging market asset returns, a media-compiled indicator measuring local currency government bonds has returned 2.2% so far this year. Last year, this low-volatility indicator returned 8.5%, its best since 2017. Another similar index tracking sovereign dollar bonds—recently favored emerging market sovereign dollar debt—also performed strongly in 2026, rising 1.7%, after a 13% surge last year.

Citigroup also notes that gold remains a favored long-term stable income asset for fund managers. Data shows that managers have increased their gold holdings amid recent market gains, driven by strong central bank demand and expectations of a weaker dollar. The firm added, “There is no disagreement on the view of going long gold and short the dollar.”

Emerging Markets’ Rally Is Far From Over

The concept of the “Magnificent Seven” (the seven major U.S. tech giants) and successful predictions of the U.S. tech bull market and emerging market trends have earned Michael Hartnett, the “most accurate Wall Street strategist,” the title of “Wall Street’s most accurate strategist.” He has repeatedly emphasized that the next global stock market bull cycle will be led by emerging markets and U.S. small caps.

U.S. bank strategists stress that global asset allocation will shift from heavy reliance on U.S. tech giants to emerging stocks, commodities, and gold. Hartnett highlights the ongoing decline of the dollar, the overconcentration of U.S. tech stocks, rising valuation bubbles in AI-related tech, and the more attractive valuations and growth prospects of emerging and international assets—especially in a scenario of dollar cycle reversal.

The current strength of emerging markets is not just a simple “high beta rebound” but resembles a broader shift in global asset pricing from “American exceptionalism” toward “weak dollar + global growth rebalancing.” When the dollar weakens and global growth remains resilient, emerging markets benefit from concentrated leadership in semiconductor and AI supply chains, improved risk appetite, higher local currency bond returns, and narrowing credit spreads.

Undoubtedly, recent market performance has validated this: while MSCI Emerging Markets Index hits new highs, U.S. markets remain volatile. Under the combination of a weakening dollar, rising fiscal pressures in developed markets, and sustained global growth, emerging market equities are among the most favorable relative performance windows in recent years.

Structurally, this emerging market bull run is not a typical “resource-driven” rally but a resonance of three forces: Asian tech, Latin American resources, and local currency bond yield recovery. One key driver of the recent record highs in the MSCI EM index is the surge in Asian tech stocks and dollar weakness. LSEG’s January 2026 Global Wealth Report shows that in 2025, the Asia-Pacific-led emerging markets outperformed the U.S. and other developed markets in key sectors like technology, basic materials, and consumer discretionary. The current rally is driven not just by rising oil and copper prices but also by core participation in the semiconductor and AI infrastructure supply chains, raw material supercycles, and local currency asset recovery. This explains why emerging markets are more likely than the U.S. to generate a broader-based bull market: they can benefit from global manufacturing and commodity rebounds and, with their massive AI infrastructure sector, become the biggest winners of AI disruptive transformation.