Emerging markets outpace US megacaps as global equity leadership broadens

Fresh updates from the financial markets indicate that The global equity surge is becoming less dependent on US mega-cap technology stocks, with emerging markets delivering a 62 percent return during the past 18 months, sharply ahead of the 25 percent gain in the Magnificent Seven, Franklin Templeton Institute stated. That stated, the fund house cautioned that tighter liquidity and more selective leadership could make the next phase of the surge more volatile.

Market leadership moves beyond US tech

The MSCI Emerging Markets Index has returned 62 percent during the past 18 months, while the Russell 1000 Value Index and Russell 2000 Value Index have advanced 40 percent and 39 percent, respectively. This compares with a 25 percent return for the Magnificent Seven stocks — Apple, Microsoft, Amazon, Alphabet, Meta Platforms, Nvidia and Tesla.

The shift marks a change from the earlier phase of the bull market, when a small group of US technology firms accounted for a large share of market upside.

Franklin Templeton stated its call for broader market participation dates back to January 2025, when it argued that the concentration of returns in US mega-cap technology stocks was unlikely to continue indefinitely.

The fund house subsequently identified US small-caps, equal-weighted equities and emerging markets as areas where market leadership could broaden.

The performance of emerging markets has been particularly notable, with the MSCI EM Index gaining significantly more than the Magnificent Seven over the same period.

The broadening trend suggests market participants have increasingly looked beyond the expensive and crowded US technology trade for opportunities across geographies and market segments.

Franklin Templeton stated the improvement in fundamentals across a wider group of firms, sectors and regions has supported the shift in leadership.

That stated, the fund house does not see the next phase as a continuation of the same broad-based surge.

Liquidity could make next phase tougher

After the firm recovery from the March lows, Franklin Templeton stated markets are entering a more demanding phase.

While earnings keep provide backing to equities, global liquidity is becoming less accommodative. The fund house defines global liquidity based on the monetary policy stance of major central banks, essentially looking at the number of central banks easing versus tightening policy.

What it means for emerging markets

For emerging markets, the changing backdrop could create a more mixed environment.

The firm 62 percent return during the past 18 months reveals that EM equities have already benefited significantly from the broadening trade. But tighter global liquidity could make foreign flows and valuations more sensitive to changes in interest rates and risk appetite.

Franklin Templeton, that stated, keeps describe the broader bull market as intact. Its caution is more around the character of the next phase — with market participants likely to become more selective rather than simply buying the wider market.

The shift additionally comes at a time when global market participants are weighing earnings expansion against elevated bond yields, changing expectations around monetary policy and geopolitical risks.