Emerging markets were downgraded to market weight after four short-term pressures converged: oil above $80 a barrel, a hawkish Fed, a stronger dollar and fading AI momentum in key Asian markets.
Markets are now pricing in one more rate hike this year as inflation stays sticky and the labor market remains solid, a backdrop that has lifted the dollar and tightened conditions for emerging-market assets.
South Korea and Taiwan — major drivers of emerging-market outperformance since early 2025 — have turned into July laggards, down 19.5% and 10.4%, while China and Indonesia lead with gains of 8.0% and 9.8%.
The call does not abandon the longer-term 'Go Global' thesis: overseas equities still look cheaper than U.S. stocks, and the broader rotation away from years of U.S. market leadership is described as intact.