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Emerging market stocks, those of companies in developing nations around the world, have been quietly outperforming this year. The MSCI Emerging Markets index has returned about 29% year-to-date, which beats all the major U.S. and European benchmarks.

It has also been the most consistent. According to a recent report from Goldman Sachs Research, the MSCI EM index has increased every month this year, rising 7% in September alone. And they believe it has plenty of room left to run.

“We think the EM equity rally can extend into the year-end as macro trends and capital inflows remain supportive,” Kamakshya Trivedi, chief foreign exchange and emerging markets strategist in Goldman Sachs Research, wrote in the report.

In fact, Goldman Sachs just raised its target for the MSCI EM Index to reach 1,480 in 12 months, up from the previous target of 1,373. As of October 17, the index was at around 1,352, so Goldman Sachs sees it advancing another 9% to 10% over the next 12 months.

What’s driving the emerging market rally?

There have been some broad themes that have driven emerging market stocks higher, including strong company earnings, a weaker US dollar, and rising demand for geographical diversification.

The 7% surge in September was largely tied to the Federal Reserve’s interest rate cut, prompting a “risk-on” sentiment among investors seeking more alpha in their portfolios, according to Trivedi and his team. This should continue, as more rate cuts are expected, potentially in October and December, and in 2026.

The research team also cited the potential for stronger company earnings, fueled by increased demand for artificial intelligence, particularly for companies in technology hotbeds like South Korea, Taiwan, and China. Goldman Sachs Research projects corporate earnings from EM companies to rise 9% in 2025 and 14% in 2026.

In addition, a weakening US dollar relative to emerging market currencies will accelerate flows into emerging markets. Trivedi’s team cited a few reasons for this. One, they are seeing higher levels of “carry,” which is when investors borrow currency in a country with lower interest rates to invest somewhere with higher rates.

Two, they noted that the US dollar has been acting more like a cyclical currency as of late — appreciating as the economy grows and declining when the economy struggles. So, that means EM currencies are likely to weaken less significantly against the dollar. In addition, they said the strong performance of EM stocks relative to developed markets likely contributed to the appreciation of EM currencies.

“The best environment for EM foreign exchange is when both the MSCI EM and S&P indices are going up and MSCI EM is outperforming,” Trivedi said.

Where to find the best emerging market stocks

Trivedi and his team outlined a few areas where the best opportunities for emerging market stock returns exist.

In Asia, they see growth potential Korean stocks. Goldman Sachs researchers said about 70% of stocks in Korea trade below book value. Plus, corporate governance reforms in Korea could also drive up the equity prices.

They also see potential in Saudi Arabian stocks, which could benefit from the “easing of limits on foreign ownership of listed companies.” That could facilitate inflows of up to $10 billion into Saudi markets, they said.

“On balance, this should be supportive of Saudi equities—which have lagged EM in the year to date—and fits with our regional diversification theme,” Trivedi wrote.

Goldman Sachs also expects continued gains from South African stocks as rising gold prices help mining companies. Further, some domestic sectors could benefit from lower borrowing costs there.

One area where a recovery is less likely is India, where stocks generally have high valuations and companies are faced with higher tariffs, among other concerns.

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