As the Middle East conflict nears its third month with little diplomatic clarity, investors are increasingly looking past geopolitical tensions and returning to a risk-on stance. Improving sentiment is being underpinned by strong demand for artificial intelligence and easing volatility, helping global equities regain momentum and establish a firmer footing.

The CBOE Volatility Index, which reflects market expectations of near-term volatility, has declined nearly 2.5% in the latest trading session and 27.03% over the past month, underscoring declining volatility in the markets and providing an additional tailwind for global funds.

According to LSEG Lipper data, as quoted on Reuters, investors poured a net $48.72 billion into global equity funds in the week ended April 22, marking the largest weekly inflow since Nov. 13, 2024 and the highest level in more than 17 months. The surge in inflows has been driven by strengthening optimism around artificial intelligence demand, along with solid first-quarter earnings from major U.S. banks.

The performance of the S&P World Index, which tracks the performance of stocks from 24 developed economies, further underscores sustained investor interest in global equities. The index has gained approximately 8.23% so far in April and 3.84% year to date, broadly in line with the S&P 500 over both periods. Over the past year, the S&P World Index has delivered a strong return of 30.17%.

Per LSEG Lipper data, as quoted on the abovementioned Reuters article, emerging market funds extended their winning streak for the third consecutive week, with investors channeling $4.34 billion into equity funds.

Rising Risk Appetite Signals Confidence Beyond Uncertainty

Investors may not be able to turn fully optimistic on global markets just yet. Lingering risks tied to the Middle East conflict and its potential aftermath, particularly the threat of higher inflation from elevated oil prices and ongoing disruptions in global energy markets, continue to cloud the outlook. As economies scramble to bolster energy security, staying attuned to geopolitical developments remains critical.

At the same time, risk appetite appears to be picking up. Despite persistent headline-driven volatility, investors are increasingly leaning into markets, driven in part by fear of missing out (FOMO) on a potential rally and expectations of stronger return opportunities. FOMO, in particular, is emerging as a powerful force shaping near-term sentiment.

According to State Street Investment Management’s chief investment strategist, Michael Arone, one of the biggest risks may be staying on the sidelines for too long, as investors attempting to time the market risk missing out on ongoing momentum, as quoted on a Reuters article.

The rally in U.S. markets is likely to generate positive spillover effects across global equities. Rather than merely rotating out of U.S. assets, investors may increasingly allocate to international markets in search of more attractive risk-return profiles and broader geographic diversification.

The S&P 500 has gained about 8.88% so far in April, reflecting a strong rebound in U.S. stocks. According to the abovementioned Reuters article, momentum is building in the U.S. markets, driven by robust AI-related spending and a solid start to the earnings season, fueling a renewed fear of missing out on the latest market rally.

A Weaker Dollar Also Adds Tailwind to Global Equity Funds

A weaker U.S. dollar is also supporting demand for global equity funds. As investors shift toward a more risk-on stance, the appetite for safe-haven assets tends to decline, reducing demand for the greenback and putting downward pressure on the currency.

According to TradingView, the U.S. Dollar Index (DXY) has fallen 0.20% over the last trading session and 0.60% over the past month. The index has also recorded an all-time decline of 17.76%.

Global ETFs to Explore

For investors seeking to increase exposure to global equity ETFs, we have highlighted a few ETFs that can help achieve global diversification.

Investors can consider Vanguard Total International Stock ETF (VXUS Quick QuoteVXUS - Free Report) , Dimensional International Core Equity Market ETF (DFAI Quick QuoteDFAI - Free Report) , Avantis International Equity ETF (AVDE Quick QuoteAVDE - Free Report) and Schwab International Equity ETF (SCHF Quick QuoteSCHF - Free Report) .

Emerging Market ETFs

Those willing to take on slightly more risk can increase their exposure to emerging market ETFs, unlocking the potential for higher returns. The Dow Jones Emerging Markets Index has gained 7.07% year to date and 10.44% so far in April. The emerging market index has also performed significantly well over the past year, gaining 30.50%.

Below, we have highlighted some funds that investors can use to gain targeted exposure to emerging market economies.

Investors can look at funds like iShares Core MSCI Emerging Markets ETF (IEMG Quick QuoteIEMG - Free Report) , Vanguard FTSE Emerging Markets ETF (VWO Quick QuoteVWO - Free Report) and iShares MSCI Emerging Markets ETF (EEM Quick QuoteEEM - Free Report) .