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 emerging market 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 equities.

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, and a weakening dollar that favors 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 sovereign bond yields in 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 US Supreme Court’s reversal of the global reciprocal tariffs imposed under President Donald Trump’s administration 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 size of $29 billion, has hit new all-time highs, rising 16% this year. Driven by the strong rally of core constituents like TSMC, the world’s largest chip manufacturer, and South Korea’s top memory chip giants Samsung Electronics and SK Hynix, the ETF’s price has repeatedly reached new highs, significantly outperforming the S&P 500.

Amid the narratives of “American exceptionalism” and “selling off US assets,” 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 index has already gained 50% this year, making the emerging market indices that include core AI industry players like TSMC, Foxconn, SK Hynix, Samsung, Alibaba, and Tencent leaders in global stock markets. Investors worldwide are pouring record amounts of capital into emerging market funds, reflecting a “global capital reallocation,” while ETFs related to Asian sovereign currencies and bonds have also seen strong inflows this year.

Michael Hartnett, dubbed the “most accurate strategist on Wall Street,” recently emphasized multiple times that as the “American exceptionalism” narrative collapses and the dollar weakens, with global growth shifting focus from the US to broader markets, emerging markets are expected to continue outperforming the US and enter a new bull cycle.

Citigroup: Top Global Fund Managers Increasing Preference for 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 equities. They favor emerging market bonds as their preferred duration asset, contrasting with their short positions on US Treasuries and core European sovereign bonds. Citigroup noted that in the credit markets, emerging market corporate debt is the most overweighted, while US 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 to hit a new all-time high, boosted by strong earnings reports from Nvidia, the core AI chipmaker, and the surge in stock prices of Asian AI supply chain companies, along with a weaker dollar.

The current stock trading environment favors semiconductor and AI infrastructure stocks over software stocks, most of which are based in emerging Asia. Citrini Research recently released its “2028 AI Doomsday Prediction,” envisioning a dystopian AI future where, despite productivity surges, the complete disruption of white-collar jobs causes a “global economic plague,” sparking panic in financial markets.

This “future AI prosperity crisis memo” reinforces a bet that Asia—home to core chip manufacturers like TSMC and many other chip and AI infrastructure companies such as Foxconn, SK Hynix, and Samsung—will be the biggest winner of the “AI disruption” trend. In contrast, US tech stocks with higher software and asset-light exposure are experiencing turbulence.

The concentration of leading-edge chip manufacturers, high-performance AI server foundries, and AI data center hardware suppliers, along with recent IPOs like Zhipu and MiniMax in Hong Kong—closely linked to large AI 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” segment—advanced process foundries, packaging, HBM/high-end server storage, critical power, liquid cooling, and thermal management equipment—since these shift AI’s unit economics from “software” to “per-token compute and energy consumption,” with most of these segments concentrated in Asia.

As shown in the chart, Asian stock markets have had the best start ever relative to US markets, with data on year-to-date returns up to February 23. 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%, the best since 2017. Another similar index tracking sovereign US dollar bonds (recently favored emerging market sovereign USD debt) also performed strongly in 2026, rising 1.7%, after a 13% increase 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 global central bank gold buying 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

Michael Hartnett, who coined the “Magnificent Seven” concept and has successfully predicted the US tech bull market and emerging market trends, has repeatedly emphasized this year that the next global stock market bull cycle will be led by: emerging markets and US small caps.

He stresses that global asset allocation will shift away from heavy reliance on US tech giants toward emerging market stocks, commodities, and gold. Hartnett highlights the ongoing decline of the dollar, the overconcentration of US tech stocks, rising valuation bubbles in AI-related tech, and the more attractive valuations and growth prospects of emerging markets 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 rather a result of 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, local currency bond returns, and narrowing credit spreads.

Undoubtedly, recent market performance has validated this view—while MSCI Emerging Markets Index hits new highs, US 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 also shows that in 2025, Asia-led emerging markets outperformed the US 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 participants in the semiconductor and AI supply chains, raw material supercycles, and local currency asset recovery. This makes emerging markets more likely than the US to generate a broader-based bull market, as they can benefit from both a global manufacturing and commodities rebound and the AI infrastructure boom, positioning them as the biggest winners in the disruptive AI era.