iShares MSCI Emerging Markets ETF (EEM) Price

Emerging Markets ETF (EEM) Sustains Outperformance as Dollar Weakens and Valuations Attract

The Emerging Markets ETF (EEM) has significantly outperformed the S&P 500 year-to-date, driven by a weakening U.S. dollar and compelling valuations within emerging markets, signaling potential for new all-time highs. Emerging Markets ETF (EEM) Sustains Outperformance as Dollar Weakens and Valuations Attract U.S. equities saw a notable trend emerge this period, with the iShares MSCI Emerging Markets ETF (EEM) demonstrating significant outperformance against the broader S&P 500 year-to-date. This divergence highlights a pivotal shift in investor focus, largely catalyzed by a depreciating U.S. dollar and increasingly attractive valuations across emerging economies. The Event in Detail As of September 11, 2025, the EEM has delivered a robust total return exceeding 24% for the year, considerably outpacing the S&P 500 SPDR Trust ETF (SPY), which recorded a 12.0% total return. This substantial lead underscores a growing bullish sentiment towards emerging markets. EEM, a large exchange-traded fund managing $19.6 billion in assets as of September 10, 2025, provides broad exposure to large- and mid-capitalization emerging market equities, encompassing over 800 stocks. While its annual expense ratio stands at 0.72% (72 basis points), its dividend yield of 2.29% offers about a full percentage point advantage over the S&P 500. From a fundamental valuation perspective, EEM trades at a compelling 14.4 times price-to-earnings (P/E) ratio, coupled with a long-term earnings per share (EPS) growth rate of 9.5%. Analysis of Market Reaction The strong performance of EEM is primarily a function of two intertwined factors: a weakening U.S. dollar and the inherent value proposition of emerging market assets. The U.S. Dollar Index (DXY) has experienced a notable decline of approximately 10% this year, reversing a prolonged period of strength. A softer dollar provides a significant tailwind for emerging markets by reducing the cost of dollar-denominated debt and enhancing the attractiveness of their assets on a relative basis. This currency dynamic also benefits U.S.-based multinational corporations, as foreign sales translate into more valuable U.S. dollar earnings. Companies such as Levi Strauss, 3M, and Edward Lifesciences have explicitly attributed improved results to favorable currency movements, while PepsiCo adjusted its profit outlook positively due to exchange rates. However, some market strategists caution that these currency-driven gains, though impactful, are often viewed as temporary boosts rather than indicators of sustained underlying business strength. Simultaneously, emerging markets present a compelling valuation story. They achieved 17.0% net gains by the end of July 2025, outperforming developed markets which saw 13.1% gains. Despite this outperformance, EMs remain considerably undervalued, trading at a forward P/E of 14x, making them approximately 30% cheaper than developed markets and a striking 42% cheaper than the U.S. market. This is further supported by lower price-to-book ratios and higher dividend yields compared to the U.S. Factors contributing to this attractive outlook include the potential for EM central banks to implement rate cuts, following a period of monetary tightening, and renewed growth momentum, particularly in China where stimulus measures appear to be taking effect and a 5% GDP growth target has been set. Countries like India are also demonstrating strong structural booms driven by urbanization and digital transformation, while Brazil has seen a significant market rebound. Broader Context & Implications The current enthusiasm for emerging markets represents a potential pivot in global investment flows. Despite their substantial economic footprint, representing 84% of the global population and 60% of global GDP, emerging markets are significantly under-owned, accounting for only 5% of global equity assets under management—half of their weight in the MSCI All Country World Index (ACWI). This under-ownership, coupled with compelling valuations, suggests that even a modest reallocation of capital from overconcentrated U.S. equities could have a substantial impact on EM performance. Technical indicators for EEM further reinforce a bullish outlook. The ETF recently broke through a key resistance range of $46 to $47, signaling further upside potential with a measured move price target estimated around $56. The long-term 200-day moving average is on an upward trajectory, indicating a controlled primary trend driven by buyers, and the Relative Strength Index (RSI) momentum oscillator remains firmly in a bullish zone. While the all-time high resistance is situated at $58, immediate support is near $47. Expert Commentary The sustained weakness of the U.S. dollar is anticipated to continue, with Morgan Stanley Research estimating a potential additional 10% loss by the end of 2026. This outlook is linked to expectations of slowing U.S. growth and a convergence of U.S. interest rates with those of other major economies. As David Adams, head of G10 FX Strategy at Morgan Stanley, observed: > "We're likely at the intermission rather than the finale. The second act for the dollar's weakening should come over the next 12 months, as U.S. interest rates and growth converge with those of the rest of the world." This perspective suggests that the tailwinds currently benefiting emerging markets are not fleeting. Looking Ahead Looking forward, the confluence of a weakening U.S. dollar, attractive valuations, and improving fundamentals in emerging economies positions the EEM for continued potential upside. Key factors to monitor include further developments in U.S. monetary policy, particularly anticipated rate reductions by the Federal Reserve, and the pace of economic recovery and policy easing within major emerging markets. The current environment indicates a sustained period of focus on EM assets as investors seek diversified growth opportunities and capitalize on favorable macroeconomic shifts. This high-volatility, high-beta play on an EM recovery underscores the importance of a long-term, active investment approach to navigate and capture opportunities within this dynamic segment of the global market.