Wells Fargo Sees Peak in Emerging Markets Rally—Time to Rebalance

Emerging markets equities have outperformed year to date, but Wells Fargo analysts believe now is an “attractive opportunity” for investors to trim exposure as structural headwinds mount.

Why the Rally May Be Losing Steam

The MSCI Emerging Markets Index is up 6.9% in 2025, versus a 3.3% drop in the S&P 500. However, Wells Fargo warns that long-term fundamentals haven't improved:

• Flat earnings since 2007: EM corporate profits remain roughly 15% below pre-Global Financial Crisis peaks.

• Persistent risks: Political volatility, governance issues, uneven regulations, and China's debt and property-sector woes.

• Trade tensions: Rising friction with developed economies could throttle export-driven growth.

Investors can track real-time index performance and sector rotations using the Sector Historical API, which shows how EM benchmarks have fared against global counterparts.

Weak Earnings Growth Undercuts Valuations

Despite recent positive economic data and stimulus in China, EM earnings momentum remains lackluster. Wells Fargo notes that consensus EPS forecasts have only “modestly bottomed” after years of stagnation.

To validate these trends, analysts often query the Earnings Historical API for emerging-market earnings surprises and year-over-year growth rates, spotting whether beat rates can sustain the rally.

Developed Markets Offer a Safer Harbor

Wells Fargo prefers developed markets for their:

1. Stable regulation: Predictable policies and stronger corporate governance.

2. Fiscal tailwinds: Accelerating government spending in Europe and selective U.S. infrastructure bills.

3. Stronger earnings cadence: Consistent profit growth versus EM's cyclical swings.

Bottom Line:
With EM equities having outpaced their fundamentals and facing renewed geopolitical and economic headwinds, trimming allocations now could lock in gains and reduce overall portfolio volatility—just as developed markets gain fresh momentum.