We retain a very constructive, positive outlook for emerging markets in 2026. 2025 was a strong year for absolute returns, driven by a strong tech cycle on the back of AI capital expenditure in the US, China going from close to uninvestable to one of the best investment stories globally and, last but not least, a huge rally in South Korea supported by the tech (memory) cycle and renewed belief in governance reforms via its Value-up Program.
We can therefore see a favourable economic and capital market environment across a large part of the emerging market universe where this year’s extreme risk events around tariffs and geopolitics are becoming anchored into investors’ psychology as ‘normal’.
We have seen a monetary easing cycle starting across many key emerging market countries, but knowing this tends to work with a lag, benefits to growth could come in 2026.
The asset class offers good earnings per share growth and, on a risk-adjusted basis, is significantly cheaper than the US. Furthermore, FX should create a favourable backdrop as we will likely see US dollar weakness resume.
Finally, we have seen a monetary easing cycle starting across many key emerging market countries, but knowing this tends to work with a lag, benefits to growth could come in 2026.
In our view there are three main risks to this favourable outlook. (1) a bubble in the US AI capex cycle; (2) the US goes into a relative significant slowdown, maybe even a recession, and (3) geopolitics, particularly around the US/China ‘cold war’ around trade and technology.
