The iShares MSCI Emerging Markets ETF (EEM) and the US Dollar Index have simultaneously risen in recent months, breaking their historical inverse correlation. This shift is driven by an AI investment surge that elevated semiconductor stocks—Taiwan Semiconductor, Samsung Electronics, and SK Hynix—to over 30% of EEM's portfolio weight. From 2017 to mid-2025, the two maintained a -0.7 correlation coefficient, with emerging markets typically falling when the dollar strengthened. Technology stocks now approach nearly half of EEM's composition by industry classification, altering the ETF's traditional sensitivity to dollar movements.
Hang Seng Index Gains 469 Points Over Two Days
The Hang Seng Index closed Friday at 23,350 points, rising 295 points and crossing above its 10-day moving average. The two-day cumulative gain reached 469 points or 2.05%, following a recovery above the 23,000 level earlier in the month.
US Dollar Index Rises 6.54% Year-to-Date in 2026
The US Dollar Index increased 1.67% in the first quarter and 1.23% in the second quarter before retreating in the second half of the year. After falling 9.37% last year—its worst performance since 2017—the index has demonstrated resilience in 2026, climbing as much as 6.54% year-to-date and reaching a high of 101.8. The index successfully surpassed the 100 threshold, marking its highest level in over one year.
EEM and US Dollar Index Break -0.7 Historical Correlation
Emerging market equities have historically moved inversely to the US dollar due to developing economies' reliance on commodity exports priced in dollars. The correlation coefficient between EEM and the US Dollar Index reached -0.7 from 2017 to mid-2025. In recent months, both have risen simultaneously, representing a departure from this long-term pattern.
Semiconductor Stocks Reach 30% Weight in EEM Portfolio
Taiwan Semiconductor, Samsung Electronics, and SK Hynix have experienced multifold price increases, driving their combined weight in the EEM portfolio to exceed 30%. When classified by industry sector, technology stocks approach nearly half of EEM's total composition. These AI-related semiconductor companies have become the primary force influencing EEM's performance, temporarily reducing the ETF's sensitivity to US dollar strength.
FAQ
What caused the correlation between EEM and the US Dollar Index to break down in recent months?
The breakdown stems from an AI investment boom that drove semiconductor stocks—Taiwan Semiconductor, Samsung Electronics, and SK Hynix—to comprise over 30% of EEM's portfolio weight. These stocks experienced multifold price increases, making them the dominant force in the ETF's performance and temporarily overriding the traditional inverse relationship with the US dollar that had maintained a -0.7 correlation coefficient from 2017 to mid-2025.
How much did the US Dollar Index rise in 2026 after falling last year?
The US Dollar Index fell 9.37% last year, marking its worst performance since 2017. In 2026, the index rose 1.67% in the first quarter and 1.23% in the second quarter, with a year-to-date peak gain of 6.54%. The index reached a high of 101.8, its highest level in over one year, after successfully crossing the 100 threshold.
