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What is the story about?
Even as Indian equities have lagged global peers in 2025, emerging markets as a whole have delivered a stellar performance. The MSCI Emerging Markets Index has surged nearly 30% year-to-date, far outpacing both India and most developed markets.
Strategists at JPMorgan now expect this momentum to continue into 2026, supported by attractive valuations, light investor positioning, and a stable-to-weaker US dollar.
China — the largest component of the EM index — has returned 21% so far this year. Taiwan’s TAIEX has been another major contributor, rallying 29% in dollar terms, while India’s Nifty50 has risen 4.1% over the same period.
Within the EM basket, China holds the highest weight at 28.8%, followed by Taiwan at 20%, India at 15.8%, and South Korea at 12.2% as of November. The MSCI EM index comprises around 1,200 companies with an average market cap of $8.3 billion, and includes Indian giants such as HDFC Bank and Reliance Industries among its top ten constituents.
“We expect emerging markets to deliver a second consecutive year of outperformance after years of lagging,” said Mislav Matejka, JPMorgan’s head of global and European equity strategy at a news conference. “We are overweight EMs — whether China, Korea or India — each benefiting from different drivers, from valuations and positioning to currency tailwinds and potential growth pickup.”
Despite this year’s sharp rally — driven in part by AI enthusiasm in China and the US — EM equities remain notably cheaper. Matejka noted that emerging markets still trade at a 30%–50% discount to developed-market peers.
According to Bloomberg data, MSCI EM is valued at 13.5 times forward earnings, compared with 20.1x for MSCI World and 21.7x for India.
The performance gap this year is stark: MSCI EM is up about 29%, MSCI World 19%, and MSCI India 7%. The turnaround is particularly striking given 2024, when EM stocks rose just 5%, lagging MSCI World’s 17% gain and MSCI India’s 11% rise.
JPMorgan, which turned bullish on emerging markets earlier this year for the first time in several years, also sees macro tailwinds forming. The bank expects risks to shift against the dollar, amid questions over the Federal Reserve’s independence and any policy moves that could weaken the currency’s global role.
In JPMorgan’s base case, upcoming Fed rate cuts could push the dollar lower, lifting higher-yielding EM currencies and strengthening carry-trade opportunities, said Luis Oganes, the bank’s head of global macro research. “That’s why we’re constructive on EM fixed income for next year.”
To capture higher spreads, Oganes said investors may need to move further down the credit curve, including toward frontier markets. Still, several emerging economies — including Brazil, Colombia, Mexico, South Africa and India — continue to offer relatively high interest rates, providing a cushion that could anchor additional inflows.
Strategists at JPMorgan now expect this momentum to continue into 2026, supported by attractive valuations, light investor positioning, and a stable-to-weaker US dollar.
China — the largest component of the EM index — has returned 21% so far this year. Taiwan’s TAIEX has been another major contributor, rallying 29% in dollar terms, while India’s Nifty50 has risen 4.1% over the same period.
Within the EM basket, China holds the highest weight at 28.8%, followed by Taiwan at 20%, India at 15.8%, and South Korea at 12.2% as of November. The MSCI EM index comprises around 1,200 companies with an average market cap of $8.3 billion, and includes Indian giants such as HDFC Bank and Reliance Industries among its top ten constituents.
“We expect emerging markets to deliver a second consecutive year of outperformance after years of lagging,” said Mislav Matejka, JPMorgan’s head of global and European equity strategy at a news conference. “We are overweight EMs — whether China, Korea or India — each benefiting from different drivers, from valuations and positioning to currency tailwinds and potential growth pickup.”
Despite this year’s sharp rally — driven in part by AI enthusiasm in China and the US — EM equities remain notably cheaper. Matejka noted that emerging markets still trade at a 30%–50% discount to developed-market peers.
According to Bloomberg data, MSCI EM is valued at 13.5 times forward earnings, compared with 20.1x for MSCI World and 21.7x for India.
The performance gap this year is stark: MSCI EM is up about 29%, MSCI World 19%, and MSCI India 7%. The turnaround is particularly striking given 2024, when EM stocks rose just 5%, lagging MSCI World’s 17% gain and MSCI India’s 11% rise.
JPMorgan, which turned bullish on emerging markets earlier this year for the first time in several years, also sees macro tailwinds forming. The bank expects risks to shift against the dollar, amid questions over the Federal Reserve’s independence and any policy moves that could weaken the currency’s global role.
In JPMorgan’s base case, upcoming Fed rate cuts could push the dollar lower, lifting higher-yielding EM currencies and strengthening carry-trade opportunities, said Luis Oganes, the bank’s head of global macro research. “That’s why we’re constructive on EM fixed income for next year.”
To capture higher spreads, Oganes said investors may need to move further down the credit curve, including toward frontier markets. Still, several emerging economies — including Brazil, Colombia, Mexico, South Africa and India — continue to offer relatively high interest rates, providing a cushion that could anchor additional inflows.
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