Emerging Markets Expected to Outperform in 2026: J.P. Morgan and Goldman Sachs Bullish Outlook

The primary catalyst driving institutional bullishness on emerging markets is the shift toward easier monetary policy globally. The Federal Reserve’s resumption of rate cuts, beginning with the December 2025 cut, has created a more favorable environment for risk assets [4]. Lower interest rates in developed economies reduce the opportunity cost of holding emerging market assets and improve liquidity conditions globally. This monetary easing cycle provides a critical support structure for emerging market valuations, as reduced rates in the United States and other developed economies diminish the comparative yield advantage that had previously drawn capital away from riskier emerging market investments.

Emerging markets have simultaneously benefited from a disinflation trend driven by tight real rates and currency stability [5]. This disinflation environment provides emerging market central banks greater flexibility in their own policy decisions, potentially enabling rate cuts that could further stimulate economic growth across these economies. The convergence of easier conditions in both developed and emerging markets creates a particularly constructive backdrop for risk assets in the developing world.

The second key argument for emerging market exposure is relative valuation attractiveness. After years of underperformance relative to U.S. equities, emerging market valuations appear significantly more reasonable [1]. Frothy U.S. valuations have led sophisticated investors to seek opportunities abroad, particularly in markets where price-to-earnings ratios remain more reasonable [6]. This valuation gap represents a meaningful opportunity for investors seeking to rebalance portfolios away from concentrated U.S. positions.

Consensus forecasts project emerging markets to deliver 17% earnings growth in U.S. dollar terms over 2024-2026, compared with 12% for developed markets [7]. This earnings growth differential, combined with lower starting valuations, creates a compelling risk-reward proposition that has attracted the attention of major investment banks. The combination of superior earnings growth potential and more reasonable valuations provides a fundamental foundation for the constructive outlook shared by both J.P. Morgan and Goldman Sachs.

A weakening U.S. dollar has emerged as a significant tailwind for emerging market performance. The Dollar versus Emerging Markets measure has been making new lows, signaling a sustained resumption of dollar weakness [8]. This currency dynamic benefits emerging markets through multiple channels: improving local currency returns for foreign investors and reducing debt burdens for emerging market borrowers who maintain dollar-denominated obligations. The currency tailwind adds an important dimension to the total return potential for emerging market investments.

The emerging markets landscape demonstrates significant regional variation that investors must navigate thoughtfully. South Korea has benefited from strong export performance, while Taiwan has reached all-time highs driven by semiconductor sector strength [10]. Mexico continues to benefit from nearshoring trends, reaching record levels, and South Africa has similarly achieved record highs [10]. Argentina, while showing periodic volatility, experienced significant gains earlier in the current cycle [10]. The MSCI EM Asia ex Japan Index and MSCI EM Latin America Index have shown particular strength, reflecting the divergent performance across regions [11].

The commodity rally—with precious metals reaching all-time highs and industrial metals extending their rally—has particularly benefited resource-exporting emerging economies [10]. This commodity strength adds another layer of opportunity within the emerging market universe, particularly for economies with significant natural resource endowments.

The reemergence of international investing represents a significant structural shift in portfolio allocation patterns [7]. After years of U.S. market dominance, institutional investors are rediscovering emerging markets as a source of alpha and diversification benefits. This shift appears sustainable given the valuation differentials and earnings growth trajectories currently in place. The J.P. Morgan and Goldman Sachs outlooks provide institutional validation for considering increased emerging market allocation, potentially triggering broader portfolio rebalancing across the investment landscape.

The evolution of emerging market investing continues with active strategies taking center stage [16]. This shift favors skilled managers who can navigate the increased differentiation within emerging markets, as opposed to broad index exposure that characterized earlier eras of emerging market investing. The分化 (differentiation) within emerging markets requires active management capabilities to identify the most compelling country and sector opportunities. Generalist index exposure may underperform relative to targeted strategies that can capitalize on the varied performance across regions and sectors.

As noted by Natixis, policy credibility, supply dynamics, and diversification are playing increasingly central roles in the emerging markets investment thesis [17]. Markets with strong policy frameworks and credible institutions are likely to outperform those with uncertain policy environments. This emphasis on policy quality suggests that investors must conduct thorough due diligence on institutional quality and governance standards when selecting emerging market exposures, rather than relying solely on broad index exposure.

Emerging markets local currency debt surged in 2025 with a 19.3% USD total return, and analysts believe the bull run may continue into 2026 based on improving fundamentals [13]. This strength in debt markets complements equity market performance and indicates broad-based investor confidence across asset classes. The convergence of strength in both emerging market equities and debt suggests a comprehensive reassessment of emerging market risk by global investors.

The constructive outlook from major investment banks creates several opportunity windows for investors. First, the consensus bullish view suggests that emerging market positioning remains underweight relative to fundamentals for many global portfolios, creating potential for continued capital inflows as portfolio rebalancing occurs. Second, the favorable investor sentiment creates an opportunity window for emerging market policymakers to advance reforms and infrastructure investments, with those demonstrating policy credibility and fiscal discipline likely to attract increased capital flows [1].

The combination of easier monetary policy, attractive valuations, and strong earnings growth projections creates a favorable tactical environment for tactical emerging market allocation. The iShares MSCI Emerging Markets ETF (EEM) has already demonstrated strong momentum with a 7.2% year-to-date gain, validating the early-stage nature of this potential market move [1].

Despite the constructive outlook, risks remain that warrant careful monitoring. Potential for policy surprises from major central banks could disrupt the favorable monetary environment that currently supports emerging markets. Geopolitical tensions that could disrupt global trade or capital flows represent an ongoing concern, particularly given current international dynamics. Currency volatility in key emerging markets could impact returns for foreign investors, while potential for valuation compression exists if global risk sentiment shifts negatively.

Key indicators for emerging market investors to monitor include Federal Reserve policy trajectory and global liquidity conditions, dollar dynamics and currency stability in key emerging markets, earnings delivery relative to consensus expectations, geopolitical developments that could disrupt trade or capital flows, and commodity price trends particularly for resource-exporting economies [4][5][7][8].

The analysis reveals several risk factors that warrant attention while maintaining balanced context. Historical patterns suggest that emerging market outperformance cycles can persist for extended periods when supported by favorable monetary conditions and valuation differentials. The current environment exhibits characteristics of early-to-mid cycle emerging market strength, though investors should remain attentive to signs of policy normalization or risk sentiment shifts that could moderate performance.

The iShares MSCI Emerging Markets ETF (EEM) has gained 7.2% year-to-date as referenced in the Barron’s analysis, with the iShares Core MSCI Emerging Markets ETF (IEMG) showing a 7.71% YTD return as of January 23, 2026 [1][2]. Emerging markets equities experienced a notable comeback in 2025, outperforming the S&P 500 index for the first time in nearly a decade [3]. Goldman Sachs Research expects the global bull market to continue in 2026, driven by earnings growth and economic expansion, projecting 2.8% global GDP growth in 2026 ahead of the 2.5% consensus [14][15].

J.P. Morgan and Goldman Sachs represent two of Wall Street’s most influential financial institutions in adopting bullish positions on emerging market assets [1]. Both cite easier monetary conditions and more attractive market valuations compared to developed markets as primary catalysts. This institutional alignment provides important validation for emerging market exposure and suggests potential for continued capital inflows as other investors recalibrate their positioning.

The current emerging market environment is characterized by multiple supportive factors: Federal Reserve easing creating favorable global liquidity conditions, dollar weakness providing currency tailwinds, attractive valuations relative to developed markets, strong earnings growth projections, and broad-based strength across both equity and debt markets. Regional differentiation requires active management consideration, with South Korea, Taiwan, Mexico, and South Africa showing particular strength [10]. The combination of these factors creates a constructive backdrop for emerging market investment, though investors should maintain awareness of potential risks and conduct appropriate due diligence.