Equities & Stock Market — 2026 Outlook

Introduction: EM Equities Entering 2026

Emerging market (EM) equities enter 2026 on the back of a transformational year in 2025. While developed market equities faced valuation headwinds and earnings slowdowns, EM equities proved resilient, buoyed by structural growth drivers and sectoral tailwinds.

The big question for investors is: can EM equities sustain this momentum into 2026? The answer depends on four key themes:

1. Global liquidity — Fed easing cycle expected to start mid-2026.
2. Sectoral leadership — Tech, green energy, and financials leading the charge.
3. Regional divergence — India and Mexico strong, China selective, LatAm and ASEAN tactical.
4. Valuation gaps — EM equities still trade at discounts to DM peers, providing entry points.

---

Macro Backdrop for EM Equities in 2026

Earnings Growth

• EM corporate earnings expected to grow ~12% in 2026 vs ~6% in DM.
• Sectors with strongest growth: semiconductors, EV batteries, digital finance, commodities.

Valuations

• EM equities trade at ~12x forward P/E vs ~18x for S&P 500.
• Dispersion within EM: India and Mexico more expensive, China and Brazil cheaper.

Flows

• Global asset managers reallocating toward EM equities.
• ETF inflows to EM projected to grow 20% YoY in 2026.

---

Sectoral Outlook

Technology & Semiconductors

• Korea, Taiwan, India lead in semiconductor and IT services.
• AI and cloud computing drive demand for memory and advanced chips.
• Valuations reasonable compared to U.S. peers.

Green Energy & EV Ecosystem

• Korea and China dominate EV battery production.
• Indonesia and Chile supply critical minerals.
• Strong policy tailwinds in U.S./Europe create demand for EM exports.

Financials & Fintech

• India’s digital finance boom expands further.
• Africa’s mobile banking continues adoption surge.
• Financial inclusion remains a structural EM theme.

Consumer & E-commerce

• Rising middle class in ASEAN and LatAm.
• E-commerce penetration growing rapidly in Mexico, Brazil, and India.

---

Regional Equity Leaders

India

• Nifty 50 earnings expected to grow ~15%.
• Tech, financials, and consumer staples lead.

Mexico

• Industrial/logistics equities benefit from nearshoring.
• Peso strength adds FX gains for foreign investors.

China

• Selective opportunities: green tech, healthcare, advanced manufacturing.
• Property and SOE overhang remains.

Brazil

• Commodities and agribusiness support equities.
• Volatility tied to fiscal risks.

---

Interim Insights (Mid-2026 View)

• EM equities will likely outperform DM equities in 2026, but investors must focus on structural winners.
• India, Mexico, and Korea remain overweight allocations.
• China is selective buy, not a broad overweight.
• ESG-aligned equities (green energy, fintech, sustainable agriculture) are strong thematic plays.

Risk Scenarios for EM Equities in 2026

1. Delayed Fed Easing
   • If U.S. inflation remains sticky, Fed policy could stay restrictive longer, weighing on EM equity flows.
2. China Growth Shock
   • Deeper slowdown in property or exports could spill into EM sentiment.
3. Geopolitical Escalations
   • Tensions in South China Sea, Middle East, or Eastern Europe could drive volatility.
4. Commodity Price Volatility
   • Sharp swings in oil, copper, or lithium impact LatAm and ASEAN equity earnings.

---

Investment Strategy Recommendations

• Core Overweights
  • India: Financials, IT services, consumer.
  • Mexico: Industrials, logistics, consumer staples.
  • Korea: Semiconductors, EV batteries, green tech.
• Selective Plays
  • China: Green energy, healthcare, high-tech manufacturing.
  • Brazil: Commodities, agribusiness.
  • Indonesia: Nickel, EV-linked equities.
• Tactical Rotations
  • Chile & Peru: Copper/lithium plays.
  • South Africa: High-beta commodity exposures.

---

Portfolio Construction Ideas

• Balanced EM Portfolio (2026)
  • 40% Asia (India, Korea, Indonesia, selective China)
  • 30% LatAm (Mexico, Brazil, Chile)
  • 20% EMEA (South Africa, GCC, Turkey tactical)
  • 10% Thematic/Frontier (Africa fintech, green energy small caps)
• Thematic Allocation
  • 25% Green energy/EV supply chain
  • 20% Technology & AI-linked equities
  • 15% Consumer & digital finance
  • 40% Core diversified EM index exposure

---

Final Outlook for 2026 EM Equities

Emerging Market equities are set to be the relative winners of 2026, with strong earnings growth and attractive valuations versus developed peers. However, dispersion across regions and sectors requires active allocation rather than passive beta.

Structural overweights remain in India, Mexico, and Korea, while tactical opportunities exist in commodities and selective China plays. ESG and thematic investing will further differentiate portfolios in 2026.