Emerging markets (EM) could be entering a new multi-year upcycle in 2026, supported by improving earnings growth, attractive valuations and a favourable global policy backdrop, according to Matt Williams, emerging markets portfolio manager at Aberdeen Investments.
Emerging market equities rose about 34 per cent in US-dollar terms during 2025, outperforming developed markets. The strong performance of EM in 2025 points to EM market leadership broadening, which is continuing into 2026.
“A key driver of emerging markets outlook is the scale of global investment now underway. We are seeing a record investment cycle in areas such as AI infrastructure, electrification, defence and supply chains,” he said.
“Emerging markets are well positioned to benefit because many of the companies and resources needed to support that investment are located in these economies.”
Williams believes that accommodative monetary policy, rising government spending and the potential for shifts in global capital flows could further support emerging market currencies and asset prices in 2026.
Structural themes shaping long-term returns
Williams said there are three long-term structural drivers shaping emerging market returns: technology as a platform, infrastructure investment and the growth of domestic brands and middle-class consumption.
“Rising incomes, urbanisation and increasing domestic demand are transforming many emerging economies, while infrastructure and industrial investment are creating new earnings opportunities across multiple sectors.”
Williams said technology remains a major structural opportunity in EMs, but investors are increasingly focused on whether large-scale AI investment can be monetised.
“For global technology companies, the next phase will be proving that the enormous capital being invested in data centres and AI infrastructure can generate sustainable returns,” he said.
“That creates both risks and opportunities. Valuations in parts of the US technology sector are stretched, while emerging markets offer exposure to many of the companies enabling the next stage of AI adoption at more reasonable levels.
“We expect the next phase of AI growth to focus more heavily on applications, inference and monetisation such as autonomous systems, robotics and smart devices.”
Emerging market valuations remain compelling and provide a supportive backdrop for long-term investors, according to Williams.
“Emerging markets still trade at a discount to developed markets on many metrics, even as earnings growth prospects remain strong.
“For investors willing to take a long-term view, the combination of structural growth, improving corporate governance and attractive valuations creates a compelling opportunity set,” he said.