Navigating opportunity amid uncertainty
Emerging markets continue to occupy a compelling position in global portfolios in 2026. After several years of volatility driven by inflation shocks, rising interest rates and geopolitical disruption, the asset class is showing renewed resilience. For long-term investors, the question is no longer whether to allocate to emerging markets, but how to position within them as the global landscape evolves.
A Resilient Growth Story
Despite a challenging backdrop, emerging economies are expected to outpace developed markets in 2026. Growth across emerging markets regions is broadly forecast in the region of 4%-4.5%, comfortably ahead of developed economies. This differential remains one of the key attractions for investors, underpinned by strong domestic consumption, favourable demographics and ongoing urbanisation trends. In addition, policy support and structural reforms in countries such as India and parts of South East Asia are helping to sustain momentum.
Encouragingly, global growth itself remains relatively stable, projected at around 3% in 2026 which provides a supportive backdrop for risk assets, including emerging markets equities and debt.
"emerging markets are no longer a homogenous asset class"
Key Drivers: Technology and Commodities
Two dominant themes are shaping emerging market performance this year:
- The AI and technology cycle: Asian markets, particularly Taiwan and South Korea, have benefitted significantly from the global surge in AI-related investment. This has driven strong equity performance and renewed investor interest in the region.
- Commodities and energy exposure: Latin American economies such as Brazil are benefiting from their status as commodity exporters, particularly in an environment of elevated energy prices.
These themes highlight an important shift, emerging markets are no longer a homogenous asset class. Instead, they offer targeted exposure to some of the most important global growth trends.
Valuation Advantage and Diversification
After years of underperformance versus developed markets, particularly the US, emerging market equities continue to trade at a relative discount.
This valuation gap has become increasingly attractive, especially as concerns grow that developed market returns, particularly in the US may moderate over the coming years.
For UK-based investors, this creates an opportunity not only for growth but also for diversification. Emerging markets assets often behave differently to developed markets, particularly in environments where commodities, currencies or regional growth dynamics diverge.
Risks Remain Elevated
However, the outlook is far from straightforward. Several risks could shape performance through the remainder of 2026:
- Geopolitical tensions
Ongoing conflict in the Middle East contributing to higher oil prices and renewed inflation pressures globally.
- Inflation and policy uncertainty
Inflation is proving more persistent than expected in some regions, complicating central bank policy decisions.
- External shocks and capital flows
Emerging markets remain sensitive to global interest rates and currency movements, particularly shifts in US monetary policy.
- Country-specific risks
Political instability, governance issues and regulatory changes continue to vary widely across regions.
Recent developments highlight this delicate balance and while emerging market equities have performed strongly in 2026, inflation risks linked to global energy supply disruptions remain a key concern for policymakers.
Outlook for the Rest of 2026
Looking ahead, the outlook for emerging markets remains cautiously optimistic. The combination of stronger growth, improving fundamentals and attractive valuations supports the case for continued investment. In addition, capital flows are beginning to broaden beyond developed markets, with emerging markets equities and debt expected to play a larger role in diversified portfolios.
That said, returns are likely to be more selective. Investors may benefit from focusing on specific regions and themes, such as Asian technology, commodity exporters, and economies with strong domestic demand, rather than taking a broad, index-based approach.
Conclusion
Emerging markets in 2026 present a compelling but nuanced opportunity. The asset class offers higher growth potential and attractive valuations but this comes alongside elevated volatility and geopolitical risk. For investors willing to take a long-term view and adopt a selective approach, emerging markets could prove to be an increasingly important driver of portfolio returns in the years ahead.
As always, diversification and careful fund selection remain key and we are happy to provide details of some highly respected and well managed funds.
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