Our 2026 outlook for emerging market (EM) equities is driven by cyclical factors such as a weaker US dollar, more favourable global financial conditions and durable structural growth trends. We believe EM gross domestic product (GDP) is set to outpace developed markets meaningfully, underpinned by stronger demographics, rising domestic consumption and continued investment into manufacturing, infrastructure and digital ecosystems. This provides EM corporates with a healthier earnings trajectory as global demand improves.
Emerging markets vs developed markets
Valuations remain a major part of the investment case. EM equities continue to trade at a sizeable discount to the US and other developed market peers on both earnings and book-value metrics.
With global investor portfolios heavily concentrated in US mega-caps after years of leadership by a small number of very large companies, 2026 offers scope for EMs to play a more prominent role in portfolios. A softer US dollar – likely if the Federal Reserve cuts rates further – can further improve EM financial conditions and enhance returns through currency appreciation.
Structural growth drivers are becoming more important across EM, with the corporate earning mix being reshaped by factors such as:
- Global supply chain diversification
- Artificial intelligence (AI) and semiconductor capital expenditure (capex)
- Rising adoption of digital platforms, and
- Energy-transition investments.
Markets such as India, Mexico, Indonesia and parts of the Gulf stand to benefit from domestic demand strength and reform momentum. East Asian tech-based economies – especially South Korea and Taiwan – remain indispensable to global technology supply chains.
China vs. EM ex-China
A central axis of 2026 EM investing is the divergence between China and the rest of EM. China faces ongoing structural headwinds, including:
- A subdued property sector
- Demographic pressures
- Lingering regulatory uncertainty, and
- Weak private sector confidence.
While valuations in China are relatively low, broad-based re-rating – essentially a notable valuation uplift – requires clearer and more consistent policy support for household consumption and private sector investment. Growth is likely to stabilise, but the long-term trajectory is structurally slower than in prior decades.
By contrast, EM ex-China remains the primary performance engine in the emerging markets space – and crucially, this is not just India and Southeast Asia. South Korea and Taiwan account for nearly half of EM ex-China indices*, and are central to the global AI, semiconductor and advanced manufacturing cycles. Their equity markets reflect some of the highest-quality companies in EM, with strong balance sheets, global competitiveness and direct leverage to one of the most powerful structural themes of the decade. In 2026, both economies stand to benefit from broad AI infrastructure rollout, high-performance computing demand, and a rebound in memory and logic chip pricing. This positions them as key drivers of earnings growth for EM ex-China.
At the same time, India continues to deliver strong domestic demand momentum and policy reforms (e.g. opening the finance sector to global investors), while Mexico and Southeast Asia benefit from supply-chain diversification and near-shoring – when a business relocates operations closer to home. Brazil and the Gulf offer cyclical and yield-oriented opportunities with improving macroeconomic stability. Together with Korea and Taiwan, these markets form a more balanced and diversified EM ex-China growth constellation than in prior cycles.
The bottom line
Our 2026 EM equity outlook is constructive but selective. A broad re-rating is possible if global conditions ease, but performance across different regions will likely continue to vary. Investors should focus on markets with credible reform stories, strong domestic demand and alignment with global structural themes.
About this update: This video was filmed on 8 December 2025.
Source for Outlook data: MacroBond, J.P. Morgan Personal Investing and Bloomberg.
* Index referenced is the MSCI Emerging Markets ex China Index.
Risk warning
As with all investing, your capital is at risk. The value of your portfolio can go down as well as up and you may get back less than you invest. Past performance and forecasts are not a reliable indicator of future performance. We do not provide investment advice in this update. Always do your own research.