HSBC economists state that Emerging Markets (EM) are well positioned for continued gains in 2026, supported by a weakening US Dollar (USD) and global policy easing, which are broadening returns beyond US mega-cap technology stocks [1]. The report highlights that EMs, particularly those with significant exposure to the technology and artificial intelligence (AI) sectors such as South Korea and Taiwan, have benefited from these themes, as reflected in their year-to-date performance [1].
Global equities have experienced broad-based gains due to easing geopolitical tensions and a retreat in oil prices over the week. In the US, strong momentum in AI stocks and robust Q1-26 earnings have propelled major indices, including the S&P 500, Nasdaq, and the 'Magnificent Seven', to record highs, with the Philadelphia semiconductor index outperforming [1]. HSBC notes that central banks outside the US may adopt a more hawkish stance, which could maintain the downward trend in the dollar and further support EM assets [1].
Additionally, Europe’s rearmament is cited as a source of fiscal multiplier effects and new earnings growth, while valuation discounts and global portfolio under-allocation continue to enhance the diversification appeal of EMs [1]. The recent surge in commodity prices is seen as a positive for markets in Latin America and Frontier economies, as well as for developed market energy and materials sectors [1].
HSBC concludes that the ongoing AI-driven rally is now benefiting a broader range of markets, suggesting that the positive momentum in EMs is likely to persist into 2026 [1].
CONCLUSION
HSBC's analysis points to a favorable outlook for Emerging Markets in 2026, driven by tech exposure, valuation advantages, and a weaker dollar. The broadening of market gains beyond US mega-cap tech suggests increased diversification opportunities for investors. Commodity price trends and policy shifts are also expected to support EM performance.