Chart of the Week

The outperformance of Emerging Market Equities is not purely a function of a weaker U.S. dollar. The chart strips out currency movements and shows that even without the effect of a weak U.S. dollar, the MSCI Emerging Markets Index still has outperformed so far in 2025 (through October 24).

We believe the recent performance improvement in the MSCI Emerging Markets Index is a sign of the emerging-market transition from commodities and low-cost manufacturing to emphasize local consumption and technology sectors, including artificial intelligence (AI). China’s government subsidizes and promotes AI as a national security priority, and Taiwan and South Korea produce essential technology components. Although the index appears expensive relative to recent history, it has been reconstituted into a tech-heavy index and is still at a significant discount to the U.S. tech-heavy S&P 500 Index.

We held an unfavorable rating on Emerging Market Equities between March 10, 2022, and October 24, 2025. Over that time, the MSCI Emerging Markets Index underperformed the S&P 500 Index by roughly 25%. Our upgrade from unfavorable to neutral implies a full allocation going forward. We believe this neutral positioning better situates portfolios for what we expect will be market performance after years of underperformance.

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Foreign investing has additional risks including those associated with currency fluctuation, political and economic instability, and different accounting standards. These risks are heightened in emerging markets.

MSCI EAFE Index is designed to represent the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the U.S. and Canada.

MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

S&P 500 Index is a market capitalization-weighted index composed of 500 widely held common stocks that is generally considered representative of the U.S. stock market.

An index is unmanaged and not available for direct investment.

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

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