Good morning, and welcome back from your holiday to Team America. This is your periodic reminder that the S&P 500 has been treading water for most of the summer. It could be that trading volumes were down, as investors glued themselves to their sun loungers but across sectors, the price action has been mostly rangebound and moving sideways.

Let’s hope this was just the market getting ready for what looks sure to be a heady autumn. But it might also be time to learn some lessons on portfolio allocation from US university endowments, which are on the comeback trail — returns look on pace to beat the S&P thanks to “a small number of very successful private companies” (hello Space X, Open AI, etc). Meanwhile, emerging-market funds are looking sunny again, pulling in investors at a decent clip, as we outline below.

But even the true believers are not impressed. There’s no pleasing some people. Tell us about your levels of EM-thusiasm (sorry): [email protected].

Emerging-market fund flows have picked up after a difficult start to the year. According to data from EPFR, EM equity funds had about $104bn in outflows in the first half of 2026, only to recoup nearly $43bn in inflows in July alone. Bond fund flows have also been positive.

Chart courtesy of EPFR: But for EM believers, the recent inflows are underwhelming. Hendrik du Toit at Ninety One says inflows “aren’t as big as they would have been in a normal cycle like this” — with a weaker dollar, attractive valuations and improving returns — and are disappointing compared to expectations prior to the outbreak of the Iran war. On the debt side, the appeal of EMs is clear: improving inflation expectations and fiscal balances relative to the US and other developed markets, as well as stronger local currencies.

Chile, Taiwan and Peru are notable examples of better debt-to-GDP ratios and strong sovereign debt ratings. This chart from Elias Hilmer at Capital Economics shows the percentage change of EM currencies against the US dollar this year, with Colombia leading the pack. But high nominal Treasury yields dull the incentive for investors to take on EM risk.

Competing for that capital, there is now a big wave of US hyperscaler debt, which offers high-yield corporate alternatives without EM sovereign risk. US debt inflows are more than triple those for the Middle East and North Africa and Asia: Back to equities, and we’re a little sceptical that the recent momentum will last. The diversification case for EM vs DM equities is harder to make out: there’s similar concentration worries in some of the big indices, and AI is also the main growth driver for the markets that have notably outperformed this year, such as Taiwan and South Korea.

A big motivation for investors to gain exposure in EM is to diversify risk and forms of return, and this edge is weakening for stocks. In a weird way, investor demand for EMs is as much, if not more, about confidence in the US stock market as it is about EM fundamentals. An EM bull market can only come if there’s more doubt on the dominance of the US markets.

As du Toit puts it: Traditionally, a weaker dollar and solid global growth are the mix needed for EM equities. But if both the big EM stocks and the US are being fuelled by the AI investment cycle, the incentives for investors to take on riskier EM growth look weaker. Bonds are the new bonds.