HSBC research expects emerging market stocks to maintain momentum in the second half of 2026, supported by reasonable valuations and AI-driven growth. The firm notes that emerging markets have already significantly outpaced developed markets this year, with India and China highlighted as key regions. Investors should monitor how tech-linked corporate profits and central bank policies evolve as the year progresses.
Emerging market equities are projected to continue their strong run through the second half of 2026, according to recent analysis from HSBC. This positive outlook is supported by a combination of attractive stock valuations, easing inflation, and supportive monetary conditions. Emerging markets have already recorded a 24% return in US dollar terms during the first six months of the year, significantly outperforming US and other developed market indices.
Valuation and Growth Drivers
A primary factor behind this trend is the valuation gap compared to global equities. The MSCI Emerging Markets Index is currently trading at 11.5 times forward price-to-earnings, which remains noticeably lower than the 17.5 times valuation seen for global equities. This difference continues to attract investor attention, particularly in regions like India and China, which are expected to see stronger performance in the coming months.
Investment interest is increasingly concentrated on companies linked to artificial intelligence and the broader technology sector. In South Korea and Taiwan, significant capital spending on AI infrastructure has directly bolstered corporate profitability. This trend is expected to broaden beyond pure technology firms to include companies that can effectively leverage AI for economic gains.
Risks and Market Volatility
While the outlook remains favorable, the report cautions investors to remain mindful of potential volatility. Sustained high earnings growth and heavy capital spending in the tech ecosystem could lead to sharper market fluctuations. HSBC also mentions the Jevons paradox regarding AI, where improvements in efficiency can lead to a surge in demand for computing resources, potentially keeping investment requirements in the technology sector elevated for longer than some might anticipate.
Central bank policies also play a vital role in this narrative. The focus has shifted from managing concerns over oil prices and geopolitical risks toward supporting resilient economic growth and corporate earnings. While the US Federal Reserve is expected to maintain its current policy stance through the remainder of 2026, the overall global economic environment remains complex due to lingering supply-side shocks.
Investors looking ahead should track the actual delivery of corporate earnings, particularly among those companies positioned as AI beneficiaries. Additionally, the evolution of regional central bank policies and the ability of emerging market economies to maintain their current levels of resilience against global supply challenges will be key indicators for the performance of these markets in the coming months.