Emerging market equities delivered one of their strongest performances in eight years in 2025, surpassing many developed markets and capturing global investor attention. According to Goldman Sachs’ report “Emerging Market Equities: AI, China, and India in Focus,” this rally may extend into 2026, supported by technological innovation, structural shifts in China, and a potential rebound in India. The MSCI Emerging Markets Index returned 34.4% in U.S. dollar terms in 2025, defying earlier concerns that tariffs and trade tensions would slow growth. Instead, emerging economies demonstrated resilience as global financial conditions eased, the U.S. dollar weakened, interest rates declined, and lower oil prices eased costs for net energy importers, creating favorable conditions for equities and bonds across the region.
Macroeconomic conditions in emerging markets remain supportive as inflation moderates, allowing policymakers to maintain or extend monetary easing measures. Resource-rich countries stand to benefit from higher prices for metals such as gold and copper, while corporate earnings expectations are improving, particularly in North Asia and China. AI-driven demand and policy support are boosting investor sentiment, providing further tailwinds for technology and innovation-focused sectors. Valuations in emerging markets currently trade at roughly a 40% discount to U.S. stocks on a one-year forward price-to-earnings basis, indicating potential for narrowing spreads if momentum persists.
Artificial intelligence has emerged as a key investment theme in the region, particularly in Asia’s semiconductor and hardware supply chains. South Korea led emerging market gains in 2025, with semiconductor stocks contributing nearly half of its returns. Taiwan also delivered strong performance, fueled by exports of semiconductors, electronic components, and data servers essential to AI infrastructure. Companies connected to the AI buildout with robust order books into 2026 are well-positioned to sustain earnings, especially as the memory-chip cycle strengthens. China also posted solid equity market gains, supported by export resilience, innovation-led growth, and a surge in initial public offerings. Guided by the 15th Five-Year Plan, China emphasizes domestic consumption and technological self-sufficiency, particularly in AI and semiconductor production. Emerging investment opportunities include AI-enabled consumer platforms, lithium-ion battery production for electric vehicles, grid storage solutions, and innovative pharmaceutical development, while robotics adoption continues to advance, with China ranking as the world’s third most automated country.
India, although lagging the broader emerging market performance in 2025 due to high valuations and cyclical slowdown, is expected to rebound. Profit growth in India is projected to accelerate into the mid-teens over the next two years, outpacing the emerging market average. Supportive policies in finance, industry, taxation, and trade, along with recent trade agreements with the United States and ongoing negotiations with the European Union, are expected to strengthen exports. Structural factors including rising incomes, favorable demographics, expanding consumer credit, and increasing digital adoption continue to support consumption trends. Small- and mid-cap companies, many under-researched, may offer selective opportunities as valuations have compressed and foreign ownership remains low, leaving room for renewed inflows if earnings and currency stability improve.
Goldman Sachs highlights that emerging markets are increasingly central to the global growth narrative, rather than peripheral. With China reshaping its growth model, India poised for recovery, and Asia integrated into the global AI supply chain, the asset class offers opportunities for active investors seeking exposure to technology, innovation, and structural growth across diverse economies.
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