Weekly market commentary

Emerging market (EM) stocks and bonds are off to a strong start to the year following a stellar 2025. We think returns can deliver again: an upbeat global macro outlook with stable inflation and disciplined policy should be supportive, in our view, though selectivity is key. We focus on mega forces driving returns in EM stocks – notably in AI across tech hardware in Asia and commodity-linked shares in Latin America. We stay overweight EM assets and prefer hard currency debt.

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Off to the races?
MSCI Emerging Markets index performance, 2015-2026

EM equities strength has carried over to 2026: the MSCI Emerging Markets index notched a nearly 9% gain last month, its best January clip since 2012 and one of its largest monthly gains in recent years, easily beating the 2.2% gain in developed market stocks. See the chart. 2025’s outperformance was led by tech and the AI theme. While EM stock strength has broadened out, dispersion and the impact of mega forces like AI are still evident. South Korean stocks have surged more than 20% after last year’s big gains, while India is still lagging even with the recent U.S. trade deal. We think such differentiation among EM rewards an active approach and being selective. We expect both EM stocks and bonds to be supported by resilient – if steady – global economic growth and a stable to softer U.S. dollar.

Solid global growth is one of the broader drivers we see supporting EM returns, along with both major and EM central banks – including the Federal Reserve thanks to a softer labor market – leaning toward rate cuts. This provides a stable macro backdrop for EM economies, even with episodic, policy-driven volatility. Immutable economic laws – such as supply chains can’t be rewired overnight – are easing policy uncertainty on trade and should support a risk-on stance in EM, encouraging further capital inflows and firmer currencies. Investor appetite for EM remains strong: 2025 was a record year for inflows, with EM debt and equity ETPs drawing $152 billion and $103 billion, according to BlackRock and Markit data.

In emerging markets, mega forces trump traditional macro

We are also seeing mega forces trump the traditional macro in EM. The AI theme has broadened out to markets like South Korea and Taiwan over the past year, with their strength in manufacturing AI hardware – especially semiconductors – driving gains. The big increase in AI capital spending plans announced by the U.S. mega cap tech “hyperscalers” should be another positive, in our view. EM is key to the AI buildout from industrial metals to manufacturing supply chains: the industrial metals such as copper needed to power the technology’s buildout are largely located in EM countries. We also see persistent supply constraints pushing up commodity prices, another potential boost for EM – especially Latin America. Demographics are also a strength for countries like India as major economies struggle with aging populations.

We lean into EM with our overweight to hard currency EM debt. Improved fiscal policy in some large EM countries stands in contrast to our theme of leveraging up happening in DM. We also like high yield EM issuers and see heightened dispersion forging opportunities for active returns. Elections this year and the potential for currency volatility, such as in Brazil, is another reason we favor EM hard currency bonds over local currency. In EM equities, markets benefiting from even more AI capex stand out. We favor leaders in China’s new economy – AI, automation and renewable energy. We also see the rewiring of global supply chains benefiting Mexico, Brazil and Vietnam, while stronger commodity prices are a boon to Latin America.

Our bottom line

We see bullish themes that drove EM outperformance in 2025 still playing out – though we favor selectivity as dispersion rises. We prefer EM hard currency debt and stay selective in EM equities, favoring mega force beneficiaries.

Market backdrop

The S&P 500 dipped on a global tech stock selloff tied to concerns about AI disruption and investment, though stocks trimmed losses into the weekend. The tech-heavy Nasdaq shed 2% as software shares were hard hit on concerns about Anthropic’s new AI tools hurting business models. We think this shows markets reacting to AI as a real economic disruptor that will sort winners and losers - not a speculative narrative. Gold prices bounced after their slide from all-time highs.

This week provides a cleaner read on U.S. inflation and jobs growth after data in previous months was distorted by last year’s government shutdown. We’re watching whether early‑year price pressures will be contained after strong core inflation in January. The jobs report for January will shed light on whether the “no hiring, no firing” stasis in jobs persists. If so, and inflation proves little changed, we see the Fed leaving rates unchanged at its next meeting.

Read our past weekly market commentaries here.

Big calls

Our highest conviction views on six- to 12-month (tactical) and over five-year (strategic) horizons, February 2026

Tactical granular views

Six- to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, February 2026

We have lengthened our tactical investment horizon back to six to 12 months. The table below reflects this and, importantly, leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns – especially at a time of heightened volatility.

Euro-denominated tactical granular views

Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, February 2026

We have lengthened our tactical investment horizon back to six to 12 months. The table below reflects this and, importantly, leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns – especially at a time of heightened volatility.