Defense, Emerging Market ETFs Lead Gains on Ceasefire and Dollar Drop

Ceasefire-Driven Rally Boosts Defense Sector ETFs

Exchange-traded funds focused on the defense sector are seeing strong inflows following a recent geopolitical shift: the announcement of a ceasefire between India and Pakistan. This event has sparked renewed interest in military and defense-linked stocks, as investors turn to safer sectors amid regional uncertainty. According to The Times of India, Groww and Motilal Oswal’s defense ETFs have gained up to 7% over the past two weeks.

This uptick is not only a reflection of geopolitical hedging but also broader shifts toward thematic ETFs that capture long-term macro trends. With defense spending projected to rise in multiple regions, investors are recalibrating their strategies to account for defense modernization and infrastructure upgrades.

Meanwhile, healthcare and biotech ETFs have seen a dip in performance. The cause: potential new policies aimed at regulating drug pricing. With uncertainty looming over how these regulatory proposals might reshape margins and R&D incentives, investors are pulling back slightly from the sector. Analysts caution that these ETFs may remain under pressure until the policy picture becomes clearer (Global X ETFs).

Emerging Markets and Active ETFs Attract Attention Amid Evolving Market Sentiment

Another major trend is the growing appeal of emerging market ETFs, fueled by a weakening U.S. dollar and improving macroeconomic data in countries like China, Taiwan, Korea, and Vietnam. The iShares MSCI Emerging Markets ex-China ETF has been outperforming the S&P 500 in recent weeks, driven by investor optimism around economic recovery and attractive valuations.

Bank of America recently highlighted that these markets are now presenting some of the most favorable conditions for outperformance since early 2021. Dollar weakness has historically been a strong tailwind for emerging market equities, and investors appear to be rebalancing their exposure accordingly (MarketWatch).

In Europe, active ETFs are gaining serious momentum. Asset managers like Jupiter are leading a wave of new launches, as European investors show increased interest in strategies that blend the flexibility of ETFs with active portfolio management. By the end of 2024, active ETF assets surged by 68%, and forecasts now suggest the total European ETF market could exceed $1 trillion by 2030, with active funds playing a pivotal role (Financial News London).

Conclusion

The ETF landscape is being reshaped by fast-moving geopolitical events, currency dynamics, and evolving investor strategies. As defense and emerging market ETFs outperform, and active ETFs gain European traction, traditional sectors like biotech face near-term risks. Investors should monitor macro shifts closely and consider strategic diversification to position for the months ahead.