Emerging markets are heading into 2026 from a position of strength, underpinned by solid economic growth, strong capital inflows, and a shifting global monetary and geopolitical landscape.
According to a report from LSEG Data & Analytics, as developed markets grapple with heightened volatility and slowing momentum, investors are increasingly eyeing emerging economies for diversification, higher yields, and exposure to long-term structural growth opportunities.
Several forces shaped emerging market performance throughout 2025 and look set to remain influential in the year ahead, LSEG noted. The rate-cutting cycle initiated by developed markets in 2024 encouraged investors to seek out higher-yielding assets, with output growth in many emerging economies continuing to outpace their developed-market counterparts. Whether inflationary conditions were easing — as seen in China — or remained persistent, as in Brazil, stronger growth and elevated country risk translated into higher interest rates and, in turn, attracted substantial capital inflows, it said.
Volatility in developed markets, driven in part by fluctuations in US tariff policy, also reshaped risk profiles and fuelled concerns around slower growth. More risk-averse investors moved towards gold as a safe haven, while those with a higher risk appetite turned to emerging market equities. Metals rallied sharply, benefitting commodity-exposed nations. Chile gained from rising copper prices, while China benefitted from appreciating aluminium. South Africa’s mining sector was buoyed by the gold rally, with domestic gold miners seeing notable uplifts in performance. The picture was more mixed for agricultural exporters, however, with commodities such as cocoa, sugar and cotton seeing price corrections, it said.
The economic uncertainty that followed President Trump’s tariff-related “Liberation Day” also called into question the traditional safe-haven status of US treasuries and the dollar. A weaker dollar can boost the attractiveness of higher-yielding currencies, adding further appeal to emerging market assets. These markets also offer meaningful geographical diversification at a time of persistent tariff exposure and geopolitical tension, with economies that carry limited trade surpluses with the US potentially well placed to act as a hedge against such risks.
Export-oriented economies — including South Korea, Taiwan and China — remain exposed to potential tariff shifts as the US administration continues its push to reduce its trade deficit. Nevertheless, LSEG highlighted that these nations hold strong competitive positions in advanced manufacturing. Recent earnings from SK Hynix underscored the continued robustness of Korean semiconductor demand, with similar momentum visible in China and Taiwan, where semiconductors, telecommunications, and AI-related sectors are meaningful contributors to overall market performance.
In China, policymakers used December’s annual Central Economic Work Conference to set out the economic agenda for 2026, with key priorities including stimulating consumption and investment to support growth of around 5%. A notable challenge identified was the imbalance between strong domestic supply and subdued domestic demand. Despite posting a record trade surplus in 2025, internal demand has remained weak. Authorities plan to revive investment following a slowdown in the latter half of the year, with focus shifting towards domestically-oriented activity rather than the already-resilient export manufacturing sector. China’s budget deficit is expected to remain near last year’s record level of 4% of GDP, reflecting continued public spending to shore up demand amid the ongoing residential property downturn. Incremental monetary easing through lower reserve-requirement ratios and targeted interest-rate reductions is anticipated.
Looking ahead, the overall outlook for emerging markets in 2026 is constructive, according to LSEG. Volatility in developed markets is expected to remain elevated, and geopolitical tensions — particularly in the run-up to the US mid-term elections — look set to persist. Structural tailwinds, including the central role of key Asian economies in global supply chains and a favourable commodity outlook, should continue to support returns across the emerging market landscape.
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