Emerging market equity exchange-traded funds have attracted substantial inflows since the start of the year for their cheaper valuations and growth prospects, despite markets grappling with geopolitical tensions and a decline in global bond markets.
According to Refinitiv Lipper, emerging market equity ETFs have attracted about $14 billion in inflows so far this year, the highest among categories, and are set for a monthly record. The previous high of $10.9 billion was recorded in March 2021.
So far this year, U.S. equity ETFs have recorded net outflows of $2.1 billion.
"Strong emerging market equity returns in 2025, which exceeded the U.S. and international developed results, lifted interest, along with a weaker dollar and a search for growth outside of more expensive developed markets," said Alan Kosan, head of strategy at Segal Marco Advisors.
"These factors are poised to attract investors new to the asset class as well as those rotating from other equity strategy exposures."
The inflows have also been reinforced by a renewed “Sell America” trade, as investors trim exposure to richly valued U.S. assets and rotate toward emerging markets with stronger growth visibility.
Underscoring the shift is the $3.7 billion outflow from U.S.-focused equity ETFs this week, according to Lipper data, while emerging market equity ETFs attracted $2.7 billion.
James Fletcher, chief investment officer at Ethos Investment Management, pointed to tailwinds from South Korean and Taiwanese technology firms benefiting from artificial intelligence-related demand, rising commodity prices and a rotation into Chinese equities.
"We believe EM outperformance is more durable than just a short-term trade, because of structural growth in markets like Southeast Asia, India, and strong earnings growth estimates across EM broadly."
This year, the MSCI Emerging Markets index has risen 5.4%, compared with 0.9% for the MSCI World index and 0.4% for the MSCI United States index.
The MSCI EM index’s forward 12-month price-to-earnings ratio stands at 13.5, well below the MSCI World’s 19.9 and the MSCI United States index’s 22.3.
(Reporting By Patturaja Murugaboopathy; with additional reporting by Gaurav Dogra in Bengaluru; Editing by Harikrishnan Nair)
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