Investors should reduce their holdings of emerging market equities and buy US stocks instead, according to Wells Fargo & Co.
While shares in up-and-coming economies have outperformed the S&P 500 benchmark index this year, emerging market outperformance is typically correlated with a weak US dollar, Austin Pickle, an investment strategist, wrote a note dated May 19. He forecasted a stronger greenback while flagging the risk of China-US tensions.
“The EM sentiment pendulum has swung too far positive,” Pickle said. “The global economic rebound we expect later in 2025 and the eventual resolution of many trade-related concerns will push EM prices higher but those returns will lag US markets.”
Wells Fargo’s position is in contrast to that of Wall Street names like Morgan Stanley Investment Management, Bank of America Corp. and JP Morgan Chase & Co. who are betting the tables may finally be turning in favour of developing-market equities. A struggling dollar and questions over the haven status of US Treasuries are typically cited as drivers of the sector’s renaissance.
“Consider US large-cap, US mid-cap or developed market equities,” Pickle said. Advanced economies “have the benefit of a more stable and predictable regulatory environment, while recent news of increased fiscal spending in Europe is likely to remain a tailwind.”
