Navin Hingorani

Emerging markets remain well positioned for continued outperformance in 2026, supported by attractive valuations, a weaker US dollar and easing monetary policy in the region, according to Eastspring Investments’ portfolio manager, Navin Hingorani.

Hingorani says the tailwinds that drove emerging markets (EM) to outperform the S&P 500 by around 16 per cent in 2025, remain intact for this year.

“The US dollar remains weak and dropped to its lowest point in four years at the end of January. This is a positive tailwind for EMs.

“EMs in general have higher real rates compared to developed markets, and they have potential to lower rates. A weaker US dollar encourages EMs to ease monetary policy further. Contained inflation and lower rates provide strong tailwinds for domestic demand in those markets.

He says the valuation gap remains compelling in EMs. “Even after a strong year, emerging markets are still trading at around a 60 per cent discount on a price-to-book basis relative to the US.

“With a universe of more than 3,000 stocks and significantly less analyst coverage than developed markets, this offers investors greater opportunity to take advantage of price inefficiencies,” he says.

Hingorani says a ‘value’ investing approach works well in EMs.

“Investors are able to buy stocks where the price does not reflect future earning potential providing investors with good potential to outperform the index,” says Hingorani.

Korea is an example of how value can be unlocked quickly in previously overlooked markets, says Hingorani.

“Korea was unloved going into last year, but was up 100 per cent at the end of 2025. It was one of the top performing markets and it’s already up considerably this year.

“We think there is still further opportunity for investors in Korea. It is home to a lot of companies producing high bandwidth memory that goes into a lot of the AI infrastructure build-out. There has also been improvement in corporate governance under the government’s Corporate Value-Up Program, which has supported Korea’s re-rating.”

Hingorani says emerging markets now represent one of the most compelling opportunities for relative outperformance in many years.

“There are strong valuations, supportive policy settings and improving fundamentals. All the combined together should signal to investors not to ignore this market,” says Hingorani.

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Navin Hingorani

Investors are yet to fully take advantage of the opportunities emerging market equities can bring to portfolios. Market conditions are suitable, and valuations are compelling, according to Navin Hingorani, portfolio manager at Eastspring Investments, who says the two criteria that investors need in order to generate alpha are cheap valuations and ‘unloved’ companies.

“The starting point for emerging markets in terms of valuations and in terms of positioning is really compelling. Emerging markets are currently cheap, trading at a 65 per cent discount to the US, and investor positioning towards the emerging market is almost in a trough.”

Historically, emerging market outperformance against developed markets has happened in environments of a falling US dollar, expanding growth differentials between emerging and developed markets (DM), and increasing CAPEX.

“Since the 2000s, 10 of the 11 biggest rallies in emerging market stocks have been during periods of a weakening US dollar. This year, the US dollar has been on a downward trajectory.

“Likewise, emerging markets have outperformed developed markets in environments where the growth differential between the two is expanding, which is the environment we are in right now. We are seeing stable to increasing growth in emerging markets versus declining real GDP growth in developed markets,” he says.

CAPEX is also a good indication of emerging market rebound and is important to monitor, says Mr Hingorani.

“Since the financial crisis CAPEX had been declining but this is starting to change. Emerging markets are the manufacturers and suppliers to the rest of the world, and tend to perform very strongly when CAPEX is increasing, which is the shift we are seeing happen right now.

“When you take all three factors into account, it suggests an environment where you have faster EPS growth in emerging markets,” he says.

The US tariffs have been topical for emerging markets and introduced a high degree of uncertainty, however Mr Hingorani says that with uncertainty comes opportunity, and that active management plays an important role in this market.

“In times of uncertainty the market pays a high price for ‘safer’ investments, but it also tends to overcompensate on the downside by penalising companies where there is a degree of fear. We have a great opportunity to be able to identify stocks that have been mispriced because of this fear around tariffs.

“Active management is also important in EMs. If you had invested in the emerging market index over the last five years, returns would have been at the third quartile, so there’s a huge opportunity for active management to outperform in emerging markets.

“Investors are essentially accessing in a diverse range of economies, across various continents. The universe of investable stocks is more than 3000, so active management plays an important role in bringing the essential thesis into specific economies and picking the right stocks with the limited resources that you have.

“It is also essential to take out any bias when selecting stocks. Don’t just invest in the most popular and most loved stocks, instead identify stocks with compelling valuations, and determine what the current share price may be telling you about future expectations.

“For investors, the biggest determinant of future return is the price that you pay when you go in, and at the moment EMs are really compelling because they are trading cheap and the upside outweighs the uncertainties,” says Mr Hingorani.

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Navin Hingorani

Eastspring Investments believes that valuations are supportive for Chinese equities in 2025, despite potential tariffs being imposed by the US, with potential for additional fiscal stimulus buoying the largest emerging market (EM), according to Eastspring Investments portfolio manager, Navin Hingorani.

“Noting the equity market rebound since September, China’s economic and financial market stability is supported by the potential for greater levels of government stimulus, cheap valuations, and low institutional ownership despite the economic challenges of recent times.

“China offers investment opportunities due to its current market distress and potential for future growth, especially in consumer-driven sectors,” Mr Hingorani said.

“While the last 20 years have been investment led, we think the next five to 10 years will be consumption led and will offer investors many interesting investment ideas. The Chinese consumer has got the highest savings rate in the world, so they’ve got the ability to go out and consume. While we are waiting for greater levels of consumer confidence, we certainly see very good opportunities in the Chinese consumption space for investors.”

More broadly, Chinese equities are cheap and rising allocations from institutions could support prices in 2025.

At a 12-month forward price-to-earnings ratio of 9.8x (end of November 2024), the MSCI China index is trading at a discount relative to its history. Mr Hingorani sees this upside despite the challenges facing the Chinese economy, including a weak property market and low consumer confidence. However, more stimulus from the government could lift investor sentiment

Turning to EMs beyond China, Mr Hingorani pointed to rising opportunities in India, Vietnam, Mexico, and other countries benefiting from global trade shifts and a potential trade war between China and the US. US market dynamics and the possible effects of a Donald Trump presidency and trade tariffs could make some EMs more volatile, but it is important to think about risk symmetrically and consider the potential for reduced interest rates which would benefit EMs and offer potential upside risks.

“While there has been talk of tariffs and a stronger US dollar, which would be negative for EMs, much of that news has already been priced into EMs since the election outcome, with US markets having outperformed. Now, we are focusing on the positives for EMs, including the potential for lower interest rates.

“In addition, we think that there is upside risk for EMs as perhaps tariffs won’t be as high as people have spoken about, as the last thing that the US needs right now is inflation to rise because of tariffs. Furthermore, from a valuation viewpoint, EMs are trading on much lower valuations compared to developed markets which could draw investor attention.

“Allocations in global mutual funds to EMs have been declining in recent years with many drawn to US markets, which has pushed down their price relative to developed markets. So relative valuations are now very attractive to investors, and EMs now represent an important value and diversification opportunity for investors as EMs often behave differently to developed markets,” said Mr Hingorani.

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