A global wealth manager has recommended investors consider portfolio allocations to emerging markets as strong opportunities are expected from these countries in 2026.
Eastspring Investments portfolio manager Steven Gray noted emerging markets are set for strong performance in the coming year given their historic relationship with the US dollar.
“Over the long term there is a strong inverse correlation between the trade-weighted US dollar and the performance of emerging markets relative to developed markets,” Gray explained.
“On a trade-weighted basis, the US dollar has weakened during the year and it is not showing signs of strengthening anytime soon.
“There’s an excellent correlation between emerging market outperformance relative to developed markets and US dollar weakness. Not least because emerging markets have lower US sales revenue exposure (around 13 per cent) compared to Japan and Europe (around 20 per cent), making emerging market earnings less sensitive to a weaker dollar, all else being equal.”
According to Gray, a second reason for optimism about investing in emerging markets in 2026 is the influence China’s economic performance has on this cohort.
“China’s strong performance in 2025 so far bodes well for emerging markets,” he indicated.
“China’s commitment to 5 per cent growth is backed by targeted stimulus, including expanded fiscal spending, bond issuance and interest rate cuts, which are aimed at boosting consumption through trade-in programs, social subsidies and sector-specific lending.
“In addition, Chinese households are sitting on U$22 trillion in deposits, which could be a powerful catalyst for spending and hence growth if confidence returns.”
He pointed out the likely end of heavy-handed intervention in the private sector economy in China is a development of which investors should take note.
“When you combine this change in government attitude with developments such as DeepSeek, which has invigorated the technology sector, the diminishing impact of the drag from the property sector, as well as initiatives such as the anti-involution policy, it may all lead to a better focus on returns,” he said.
“There are definite legs to the story that China can remain strong, but perhaps most importantly, China doesn’t need to outperform, it just needs to stop being a drag for emerging markets so that overall emerging markets can have a better chance of outperforming relative to developed markets.”
He concluded the potential for emerging markets to outperform developed markets in the immediate term is the strongest it has been in 15 years.