Emerging Market Outlook 2026

2025 marked one of the strongest years for emerging market (EM) assets since 2017 — a rally underpinned by broad-based rate cuts and a weaker US dollar. These supportive external conditions helped fuel an EM rebound across both equity and debt markets.  

At the same time, many EM economies demonstrated notable resilience. Strengthened fiscal positions, ongoing structural reforms and more credible policy frameworks enabled several countries to weather global volatility more effectively than in previous cycles. 

Looking ahead to 2026, the macroeconomic backdrop remains broadly favourable for EM, even as global growth moderates. According to International Monetary Fund (IMF), EM and developing economies are expected to expand by just above 4%, compared with 1.6% in advanced economies — including forecasts of 2.1% for the US and 1.1% for the eurozone. This sustained growth premium underscores EM’s relative strength in a slowing global environment. 

A further supportive factor is the downward trend in global inflation. Disinflation across major economies could provide central banks — particularly the Federal Reserve — with scope to continue easing in 2026.  

As Ashmore Group’s Head of Research, Gustavo Medeiros, notes, “China’s disinflationary impulse and AI driven productivity gains mean global inflation is likely to move lower. This would give the Federal Reserve and other central banks room to continue easing, supporting stable global GDP growth and faster growth in countries with still-elevated real interest rates, such as India and Brazil.”   

Emerging Markets Equities Outlook

Emerging market equities delivered a strong outperformance in 2025, reflecting both improving fundamentals and a favourable external environment. Year-to-date (as of 1 December 2025), the MSCI Emerging Markets Index has gained 17.02%, more than double the return of the MSCI ACWI at 8.10%. Early indicators suggest that the setup for 2026 remains supportive. 

A key tailwind continues to be the trajectory of the US dollar. EM equities historically benefit from a stable or weaker dollar, as this reduces the burden of USD-denominated debt, strengthens commodity exporters’ earnings profiles and grants central banks greater policy flexibility. 

“All indications suggest to us this supportive dollar environment will likely remain in 2026. The Federal Reserve is forecast to continue cutting rates, suggesting the environment will become even more supportive of EM equities,” notes Andrew Mathewson, Portfolio Manager at Clearbridge Investments. 

Within the asset class, leadership is becoming more differentiated. City of London Investment Management (CLIM) notes the sectoral shift underway: “This year, IT became the largest sector in the MSCI EM Index (24.6% as of August 2025), overtaking Financials (23.4%). If US hyperscaler capex continues to expand, EM’s large tech and AI-related hardware exposure will likely continue to benefit,” says Justin Kariya, Head of Economic and Market Strategy at CLIM. 

Also State Street Investment Management sees artificial intelligence as a complementary driver of long-term performance. “AI-led productivity growth is bullish for EM countries such as India, Saudi Arabia, and the UAE, where governments are driving AI development and infrastructure,” says Lori Heinel, Global CIO. 

Malcolm Dorson, Head of the Active Investment Team and EM Senior Portfolio Manager at Global X, takes the regional differences into account: “Despite our bullish outlook, we acknowledge that broad EM index exposure isn’t for everyone.” He sees the biggest themes in “going back to BASICs”: Brazil, Argentina, Southeast Asia, India, and China.  

On Argentina specifically, he highlights the upside potential: “We believe Argentina’s equity market now offers one of the most asymmetric opportunities in Emerging Markets. Credible policy, cheap valuations, and rising institutional engagement position it for a potential multi-year rerating.” 

Emerging Market Bonds Outlook

Emerging market debt also appears well positioned heading into 2026. Many EM countries are benefiting from robust domestic demand, rising capex and structural shifts in global supply chains. 

J.P. Morgan Asset Management is optimistic about the fundamentals. “Credit rating agencies are expected to announce more upgrades than downgrades for emerging market countries. Since ‘Liberation Day’, emerging markets have gone from strength to strength, weathering volatility with increased investor allocations and becoming the best performing asset class within public fixed income markets,” the asset manager notes. 

The policy backdrop adds further support. Amundi notes that more than 15 EM central banks cut rates in 2025 amid moderating inflation and a roughly 7–8% depreciation of the US dollar — a rare environment combining monetary easing with currency stability. This gives many EM issuers room to lower borrowing costs, ease debt-servicing burdens, and improve credit profiles. 

Priyank Shah, Senior Investment Specialist, Emerging Markets Debt at Amundi notes, credit fundamentals have improved: “2025 saw the best credit rating upgrade cycle in a decade and no sovereign defaults, narrowing EM–DM credit quality gaps.” 

Some of the highest conviction in 2026 lies in EM local-currency debt. “EM local currency debt provides enticing real rates and a better carry-to-volatility profile than developed market government securities,” highlights J.P. Morgan Asset Management, pointing to quality EM local markets such as Mexico, the Czech Republic and Thailand.  

Aberdeen Investments believes that returns can be supported by a weaker US dollar and lower EM interest rates.  “We expect continued strong local currency performance in 2026, both from a rates and FX perspective,” says Leo Morawiecki, Investment Specialist, Fixed Income, Aberdeen, and adds: “On top of this, investor diversification away from the US into EM local currency debt will support the sector.”