Wall Street Doubles Down on Emerging Markets for 2026
The global investment community, led by some of Wall Street’s biggest names, is staking a confident claim on emerging markets for 2026, anticipating a banner year driven by favorable financial conditions and compelling economic fundamentals. This bullish outlook suggests that for the first time in a decade, emerging market equities are truly stepping out of the shadow of their developed market peers.
The primary fuel for this expected rally is a combination of monetary and macroeconomic shifts. Analysts from major banks are counting on a continued weakening of the US dollar, which often acts as a headwind for developing economies, and a more dovish Federal Reserve, with anticipated rate cuts throughout the year. This easing environment is expected to keep financing conditions benign, offering a crucial lifeline to emerging market bonds and currencies.
Morgan Stanley strategists, for instance, are advising clients to maintain long positions, projecting that emerging market local currency bonds could offer a remarkable 7% return, the best performance since 2020. Beyond the flow of money, the sheer value proposition is hard to ignore, with emerging market equities currently trading at an approximate 30% discount to developed markets. Furthermore, earnings growth for EM companies is forecast to hit a strong 14% in 2026, which is a powerful combination for investors seeking growth outside of highly concentrated US tech plays.
A World of Divergent Growth
While the overall forecast for emerging market aggregate growth stands at a solid 4.0% for 2026, the story is highly regional, with clear leaders and notable laggards.
Asia’s Tech Engine and India’s Ascent: The Asia-Pacific region is predicted to remain the fastest-growing engine of the world economy. Key drivers include a strong presence in dynamic sectors like IT and electronics, along with supportive government policymaking. India is a standout star, with robust domestic demand supporting a GDP growth forecast of 6.7% for the year.
A Split in Latin America: South America presents a more mixed picture. While Brazil’s economy is projected to slow slightly, with growth forecasts around 1.5% to 1.7%, inflation is easing. This deceleration is expected to prompt the central bank to start lowering interest rates, which should stimulate domestic activity later in the year. Up north, Mexico’s growth is expected to be modest, forecasted at roughly 1.4%. The much-hyped ‘nearshoring’ trend of manufacturing moving closer to the US has yet to fully materialize in the hard GDP data, though its long-term potential remains a core investment thesis.
Overlooked Opportunities: Two other regions are also set for notable expansion. Sub-Saharan Africa is forecast to be the single fastest-growing region globally, expected to see a 4.1% rise, a trend largely driven by rapid population growth. Meanwhile, the Middle East and North Africa (MENA) is set for its strongest expansion since the pandemic recovery, supported by a favorable outlook for higher OPEC oil production quotas.
Risks on the Horizon
Despite the optimism, investors are wary of several key risks. Escalating US tariffs, which could raise costs for consumers and disrupt global supply chains, remain a significant concern. Furthermore, a global mountain of debt is set to peak in the coming years, which presents refinancing risks for some of the more vulnerable economies. Finally, in Latin America, the scheduled 2026 review of the USMCA trade agreement adds a layer of policy uncertainty, particularly for trade-dependent economies like Mexico.
Even with these risks, the consensus remains that the improved valuation and structural tailwinds make emerging markets a powerful destination for capital in 2026. The shift from a focus on developed economies to this diverse, dynamic group suggests a new chapter in global investing is beginning.