Global emerging markets outlook to 2026

We bid farewell to a strong year, with emerging market (EM) equities significantly outperforming developed market (DM) equities in 2025. While it may be overly optimistic to expect a repeat of similar performance, we believe the outlook for emerging market equities in 2026 remains positive. Several themes that continue to drive earnings momentum in the asset class underpin this outlook.

Artificial intelligence (AI) supply chain

Emerging markets are far from homogeneous, and the diversity of countries and industries creates a unique set of investment opportunities. Artificial intelligence is likely to continue to be a key driver in the broader information technology sector, and the structural growth potential of artificial intelligence continues to support the investment case we foresee in key emerging markets. Importantly, this set of opportunities is not limited to direct semiconductor beneficiaries in South Korea. We believe attractive investment opportunities are emerging in other segments of the artificial intelligence supply chain - such as electronics manufacturing services, power unit and printed circuit board companies.

At the same time, some Chinese internet companies are increasingly integrating artificial intelligence into their ecosystems, which could lead to cost efficiencies and incremental growth for traditional e-commerce and advertising models. China's leading internet companies are major Cloud as a Service providers and will benefit from rising demand for artificial intelligence-related workloads. They are developing competitive artificial intelligence models and semiconductor chips to position themselves more directly in the artificial intelligence technology stack.

China's industrial leadership

Global electricity demand continues to rise, a trend that is accelerating amid the growth in energy demand for data centers underpinned by the artificial intelligence boom. This demand has triggered a surge in related infrastructure, including energy storage batteries and associated power equipment. Chinese industrial companies are at the forefront of this trend, achieving growth in the domestic market as well as growing exports. Similarly, Chinese electric vehicle manufacturers are leveraging their technological strengths to gain international market share, a trend that looks set to continue throughout 2026.

Policy change and domestic reform

Many emerging market central banks continue to ease monetary policy to support domestic demand and balance broader policy objectives, and we expect this trend to continue in 2026.

In China, the anti-involution movement aims to curb excessive price competition and industrial overcapacity. While it is too early to assess the success of this initiative, it could begin to shift incentives away from profit-destroying competition, particularly in industries where policy scrutiny is increasing. For well-managed companies, this could reduce defensive spending to protect market share, thereby improving earnings quality and achieving more rational quotas over time.

In India, consumption-focused policy support appears to be influencing recent consumption trends. In 2026, the benefits of these reforms should become more apparent in corporate earnings.

In Latin America, Brazil is well-positioned to benefit from a more accommodative interest rate environment in 2026, although the upcoming election could introduce some market volatility. Meanwhile, Mexico continues to benefit from nearshoring dynamics and its strategic proximity to the United States.

Trade, tariffs, and resilience

US tariffs are now largely in place because most countries have trade agreements in place. At the time of writing, some emerging market countries, including Brazil and India, are still in active trade negotiations with the US. However, these economies are less dependent on exports than some of their peers, so they are relatively more resilient to direct shocks even if they occur.

Emerging market stocks have shown resilience as they recover from initial tariff-related disruptions in 2025.KCM ForexThis adaptation - growth drivers through supply chain adjustments, trade redirection, and domestic anchoring - will continue to support the asset class.

conclusion

Compelling long-term themes, including leadership in artificial intelligence-related supply chains, technology, digitalization, consumer sophistication and healthcare, are shaping the emerging markets investment landscape in 2026. These structural growth areas, combined with supportive valuations in some emerging markets, underpin our positive outlook for 2026.