Emerging Markets Hit Record Flows

The record inflows into emerging markets saw diversified EM stock funds attract an unprecedented $15.4 billion in January 2026 alone. This momentum continued with EM equity ETFs gathering another $13 billion in February, pushing the year-to-date total to $28 billion as investors chase returns that significantly outpaced the S&P 500 in 2025. India's underperformance is directly tied to its significant energy vulnerability, as the nation imports over 85% of its crude oil. A sustained $10 per barrel price increase is estimated to widen India's current account deficit by 0.3-0.5 percentage points and add up to $14 billion to the annual import bill, stoking inflation. In contrast, South Korea's market strength is fueled by its central role in the global AI and semiconductor supply chains. Investor confidence has also been bolstered by a new pro-market government championing corporate governance reforms, which legally require company boards to act in the interest of all shareholders. The de-dollarization trend among BRICS nations is accelerating with concrete steps. Following a 2024 summit, a prototype for a unified payment system to bypass the dollar was introduced. It's estimated that by 2025, over a quarter of all trade between BRICS members will be settled in local currencies. The "China+1" strategy, where companies diversify manufacturing away from China, has seen Vietnam emerge as a major beneficiary, attracting $37 billion in foreign direct investment in 2023. Tech giants like Apple and Samsung have significantly expanded operations there, drawn by lower costs and strong infrastructure. While also a "China+1" candidate, India has faced challenges in capturing this investment shift due to infrastructure bottlenecks and regulatory complexities. However, the government's Production-Linked Incentive (PLI) schemes, worth nearly $24 billion, are actively targeting growth in key manufacturing sectors to attract foreign companies.