Emerging Markets Mirror Past Pullback Rallies

Emerging markets equities are currently tracking a price and behavior pattern that closely resembles several prior early-stage EM upcycles. The setup features an initial advance off depressed levels, followed by a developing short-term pullback phase before a projected resumption of the rally into year-end and early 2027.

Historically, this structure has appeared after substantial EM drawdowns or multi-year underperformance, when valuations and positioning have already reset lower. Episodes around 1998-1999, 2001-2003 and the post-2008 period all showed sharp interim setbacks within broader 14-24 month advances.

Broad EM ETFs such as iShares MSCI Emerging Markets ETF (EEM), Vanguard FTSE Emerging Markets ETF (VWO), iShares Core MSCI Emerging Markets ETF (IEMG) and Xtrackers MSCI Emerging Markets Hedged Equity ETF (DBEM) historically have transmitted these index-level patterns almost one-for-one. During past cycles, temporary drawdowns within the trend often coincided with increased volatility but did not prevent subsequent index-level recovery.

Pattern reliability has depended on several macro conditions: an improving or at least non-tightening global liquidity backdrop, a US dollar that is not in the early stages of a powerful new up-leg and the absence of severe external shocks. When those conditions have broadly held, EM-to-DM performance ratios have often swung in favor of emerging markets over multi-year horizons, even as short-term pullbacks remained a recurring feature.