Emerging markets were a standout performer from 2025, and may have further to run in the year ahead.
- The growth rate for emerging markets is currently 2.5x that of developed markets, according to the IMF
- US tariff policy is a risk, but emerging markets are reducing their dependence on the US
- Commodities are AI could power EM stock markets
While it would be premature to judge 2026 on the opening few days in markets, it has been an encouraging start to the year for emerging markets. Asian stock markets have already bounced 3% since the start of the year, with Latin American markets hot on their heels. This follows a stellar year in 2025, when emerging market funds gained over 20%. Yet many investors remain underweight – could that change in the year ahead?
The growth story for emerging markets is still intact. The growth rate for emerging markets is currently 2.5x that of developed markets, according to the IMF. Emerging markets are less constrained by debt, having been far more fiscally prudent than their developed market equivalents during Covid and beyond. They have greater flexibility to drop interest rates or use fiscal policy to stimulate their economies in the year ahead. High US debt levels may also exert downward pressure on the Dollar, which would be a boost for many emerging market economies.
Emerging markets have shrugged off US tariff policy over the past 12 months. In particular, China has successfully reduced its dependence on the US since Trump’s last term, expanding its trading relationships. Not only does this suggest that many emerging markets can manage the risk of further aggressive action from the US, it may also increase intra-emerging market trade and leave emerging markets less sensitive to US policy in the longer term.
The make-up of emerging stock markets may also be to their advantage. Whether AI is or isn’t in a bubble, emerging markets may be a better way to play the trend than through the inflated US markets. Chris Tennant, co-portfolio manager of Fidelity Emerging Markets investment trust, says: “The outperformance of the US has largely been driven by excitement around artificial intelligence, which overlooks the fact that the bulk of the tech supply chain sits in markets like Taiwan and Korea, and much of the value accrual from AI and datacentres will go to EM companies.”
Equally, commodity companies based in resource-rich emerging markets may benefit from growing resource nationalism. Battles over oil, rare earths and other supply-constrained commodities have characterised the past 12 months and look set to be an ongoing feature of geopolitics from here.
Above all, emerging markets may benefit from looking like the sane people in the room. In general, emerging markets are following orthodox monetary and fiscal policy, respecting international law and acting as reliance trading partners. This is not universally true. More investors may decide that the risks in emerging markets versus developed markets have been overstated.
