Wall Street’s Playbook: Emerging Market Equities to Lead the Next Bull Market, Instead of the U.S.

TradingKey - Rather than dwelling on the policy instability and unpredictability of the Trump 2.0 administration, Wall Street is coalescing around a growing consensus: the era of U.S. exceptionalism is over, and emerging market equities are poised for a golden age.

Compared to 2024’s AI-driven bull run in U.S. markets, the U.S. capital markets have faced continuous turbulence in 2025, following Trump’s return to the White House. After April’s new tariff threats, investors in dollar-denominated assets are now weighing concerns over U.S. fiscal sustainability and the ongoing selloff in U.S. Treasuries.

In contrast, several major financial institutions — including Morgan Stanley, Bank of America, and Franklin Templeton — have identified a clear and “high-conviction” investment theme: emerging market equities will inherit the mantle of the next bull market from U.S. stocks.

The Case for Emerging Markets

Michael Hartnett, a prominent strategist at Bank of America, believes that emerging market equities will become “the next bull market”, driven by a weakening U.S. dollar and China’s economic recovery.

AQR Capital Management projects that over the next five to ten years, local currency returns from emerging market equities could average 6% annually, outperforming the 4% annualized return expected from U.S. equities in dollar terms.

Franklin Templeton analysts warn that the risk of a weakening U.S. dollar should serve as a wake-up call to global investors, suggesting that emerging market bonds may increasingly serve as an alternative to U.S. Treasuries.

The firm pointed out that the fundamentals of major emerging markets remain strong, particularly in countries with low external debt levels and favorable debt-to-GDP ratios.

From a capital flows perspective, J.P. Morgan noted that while a clear shift from U.S. assets to emerging markets has yet to materialize, there has been increased preference for European assets. However, if the U.S. dollar continues to weaken, a second wave of global capital reallocation could significantly benefit emerging markets.