The trade everyone said was dead is up 16% before Memorial Day.
The MSCI Emerging Markets Index is set for its best month since 2009. It has now beaten the S&P 500 for five quarters in a row. A sixth is on the way.
The April rally pushed the index back to record highs. That happened even as oil supply fears stayed in the background.
Two stories are doing most of the work.
The first is AI chips. They have been quietly reshaping the index for over a year now.
Taiwan Semi, Samsung, and SK Hynix make up more than 20% of the MSCI EM Index by themselves. Earnings out of those names this season pointed to chip demand that still hasn't slowed.
Analysts have lifted profit forecasts for EM firms by about 30% this year. They have lifted S&P 500 forecasts by just 10%.
That means EM is growing earnings about three times faster than the U.S.
The second story is the dollar. It has been drifting lower since late 2025.
A weaker dollar makes things priced in other money look better by comparison. It also lifts the value of EM exports back into U.S. dollars.
EM stocks now trade at a 44% discount to the S&P 500 on forward earnings.
Forward earnings are profit per share that firms are expected to report over the next year.
That gap is the widest since April 2025. It puts EM stocks on sale at a moment when their earnings story is the strongest in years.
Cheap stocks plus fast earnings growth is the kind of setup that pulls in U.S. money the longer it lasts.
Cash has been flowing into EM funds. But most U.S. investors are still light on EM relative to the rest of the world.
That gap on its own gives the rally room to keep running.
The same setup looked good in 2017 and 2020. Both times, EM ran for several quarters before fading. The current run is already four quarters old. It could still have legs.
The "despite oil fear" part is real.
Middle East shipping risk pushed oil prices around in early April. Attacks on energy sites disrupted tankers moving through the Strait of Hormuz.
Oil supply hit its biggest drop in modern history in March. It eased in April. More tankers got through. A U.S.-Iran ceasefire took some heat out of the trade.
Risk-on rallies don't usually like that backdrop. This one has run anyway.
The risks haven't gone away. A fresh oil shock could clip the rally fast. A stronger dollar could do the same.
The other piece worth watching is China. China is the biggest country in the index. A shift in U.S.-China trade talks could move EM stocks fast in either direction.
For now, the trend is up. Funds are buying. Earnings are rising. The dollar is soft.
That's a clean setup for risk assets, even with the noise around oil.
If the dollar keeps drifting lower while AI earnings keep printing, the gap between EM and the S&P 500 closes the easy way.
