Emerging markets equities are off to a strong start in 2026, meaningfully outpacing their US counterparts. Year to date through February, the MSCI Emerging Markets Index (net) has advanced 14.83% compared with 0.68% for the S&P 500® Index. This outperformance comes without much help from the US dollar and reflects several powerful themes running through emerging market countries, including AI and reforms.
This has, in turn, buoyed earnings across emerging markets, driven by the tech-heavy markets of South Korea and Taiwan. Consensus estimates have risen consistently so far in 2026, setting up the asset class for two consecutive years of closing the earnings gap with the US, as shown in the chart below.
Source: FactSet. Data as of February 27, 2026.
Economically, most countries have made progress cutting debt, taming inflation, and improving current-account balances. While economies may be on a stronger footing, geopolitics remain a risk, complicating the outlook for China and India, not to mention the Middle East, which is at the center of the most recent war. That said, the geopolitical landscape may continue to benefit select emerging market countries as global manufacturing supply chains are reconfigured in this multipolar world.
Read on for a summary of our thinking on the main countries and regions of emerging markets.
After a strong start this year, Chinese equities have underwhelmed due to increased concerns about consumer and the competitive intensity of various industries. This may continue to cloud the outlook, offsetting the innovation we see. We continue to watch for improvement in consumer confidence.
The outlook for India has become more complicated with geopolitics, the potential for a weaker rupee, and a fragile earnings recovery. That being said, various trade agreements potentially represent an external growth stimulus for the Indian economy in 2026. There are signs of a pickup in economic activity. Valuations have improved but still are not cheap. We remain highly selective.
An extended semi-cycle due to strong demand and supply tightness is expected to lead to further earning improvements. South Korean and Taiwanese tech giants have essential roles in the AI supply chain, capturing a growing share of the overall profit pool. This, combined with a greater focus on improving corporate governance in South Korea, should continue to support market performance.
The outlook differs across the Association of Southeast Asian Nations (ASEAN) region. In Thailand, for example, we see potential for more political certainty and improved reform momentum, while in Indonesia, increased concerns over ownership and transparency in the stock market has the country on the brink of being downgraded by MSCI. Notwithstanding the above, we believe the regional stocks bode attractive valuations.
Latin America is back on investors’ radar given stronger commodity prices and a more market-friendly political climate across the region. Still, election risk remains a concern in Brazil, with April 2026 as the deadline for individuals to formally declare their candidacies in the presidential election. Countering that risk is the benign inflation backdrop in Brazil, which should support the start of a monetary easing cycle. In Mexico, nearshoring trends, US economic ties, and the potential for a positive review of the United States-Mexico-Canada Agreement (USMCA) trade agreement should help promote growth.
Across the Middle East and North Africa (MENA) region, growth may rise more slowly than was expected before the Iran conflict began, while investors may seek a higher risk premium due to the greater risk uncertainty in the region South Africa has ongoing reform momentum, strong commodity prices, and improved fiscal stability, which should continue to provide a sound backdrop.
Overall, we generally remain constructive on the outlook for emerging markets, on the back of improved fundamentals, thematic tailwinds, and attractive valuations. Risks remain, however, whether geopolitical or political, helping to reinforce the need for investors to seek durable franchises that can compound through the policy noise.
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