Staying positive on emerging markets
Market take
Weekly video_20260209
Axel Christensen
Chief Investment Strategist for Latin America,
BlackRock Investment Institute
Opening frame: What’s driving markets? Market take
Camera frame
We think emerging markets can deliver again after a stellar 2025. They’re supported by an upbeat macro outlook, with stable inflation and disciplined policy. But we stay selective, focusing on mega forces driving returns.
Title slide: Staying positive on emerging markets
1: Emerging markets off to the races
The MSCI emerging markets index notched a 9% gain last month – well above the 2.2% gain in its developed markets counterpart. Performance has broadened out beyond the AI theme, but we still see significant dispersion. South Korea, for example, has surged 21%, while India is still lagging. That means an active approach is key, in our view.
2: Mega forces driving EM returns
We see several broad factors driving emerging market returns. Solid global growth gives emerging market economies a stable backdrop even with sections of episodic, policy-driven volatility. Potential rate cuts as the inflation outlook improves are also supportive. And easing trade uncertainty could encourage further capital inflows and firmer currencies.
In addition to these macro factors, mega forces like AI are also helping drive returns. Emerging markets are key to the AI buildout. South Korea and Taiwan – leaders in manufacturing AI hardware – stand to benefit as the US hyperscalers spend even more on AI than expected. And the industrial metals needed to power the technology are largely located in emerging market regions. Supply chain constraints could push up commodity prices – another potential boost.
3: Leaning into emerging markets
We are overweight hard currency emerging market debt.
Elections this year could lead to currency volatility – a reason we prefer hard currency debt to local currency. We also like high yield emerging market issuers, and think increased dispersion could create opportunities for active returns.
On the equities side, we favor markets benefiting from even more AI capex. We favor leaders in China’s new economy: AI, automation and low-carbon energy. And we see rewiring global supply chains and stronger commodity prices benefiting Mexico, Brazil and Vietnam.
Outro: Here’s our Market take
We see the bullish themes that drove emerging market outperformance in 2025 still playing out – though we think selectivity is key as dispersion rises. We prefer emerging market hard currency debt and stay selective in emerging market equities, preferring stocks that benefit from mega forces like AI.
Closing frame: Read details: blackrock.com/weekly-commentary
We think emerging market (EM) assets can build on a solid start after a strong 2025. We prefer EM hard currency debt and are selective in EM equities.
The S&P 500 fell slightly but rebounded from lows driven by a global selloff. We think recent moves are evidence of the power and scope of the AI mega force.
Fresh US inflation and jobs data this week should clarify whether January’s price pressures fade and if the labor market’s “no hiring, no firing” stasis holds.
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.
Off to the races?
MSCI Emerging Markets index performance, 2015-2026
Past performance is no guarantee of future results. It is not possible to invest in an index. Indexes are unmanaged and performance does not account for fees. Source: BlackRock Investment Institute, MSCI, with data from LSEG Datastream. Note: The chart shows the annual performance of the MSCI EM$ index through the calendar year from 2015 to 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 US 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 US 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 US 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 US 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.
Week ahead
Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and do not account for fees. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from LSEG Datastream as of February 5, 2026. Notes: The two ends of the bars show the lowest and highest returns at any point year to date, and the dots represent current year-to-date returns. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in US dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, ICE US Dollar Index (DXY), spot gold, spot bitcoin, MSCI Emerging Markets Index, MSCI Europe Index, LSEG Datastream 10-year benchmark government bond index (US, Germany and Italy), Bloomberg Global High Yield Index, J.P. Morgan EMBI Index, Bloomberg Global Corporate Index and MSCI USA Index.
China total social financing
US payrolls
UK GDP
US CPI, euro area trade balance
Read our past weekly commentaries here.
Big calls
Our highest conviction views on six- to 12-month (tactical) and over five-year (strategic) horizons, February 2026
| Reasons | ||
|---|---|---|
| Tactical | ||
| Still favor AI | We see the AI theme supported by strong earnings, resilient profit margins and healthy balance sheets at large listed tech companies. Continued Fed easing into 2026 and reduced policy uncertainty underpin our overweight to US equities. | |
| Select international exposures | We like Japanese equities on strong nominal growth and corporate governance reforms. We stay selective in European equities, favoring financials, utilities and healthcare. In fixed income, we prefer EM due to improved economic resilience and disciplined fiscal and monetary policy. | |
| Evolving diversifiers | We suggest looking for a “plan B” portfolio hedge as long-dated US Treasuries no longer provide portfolio ballast – and to mind potential sentiment shifts. We like gold as a tactical play with idiosyncratic drivers but don’t see it as a long-term portfolio hedge. | |
| Strategic | ||
| Portfolio construction | We favor a scenario-based approach as AI winners and losers emerge. We lean on private markets and hedge funds for idiosyncratic return and to anchor portfolios in mega forces. | |
| Infrastructure equity and private credit | We find infrastructure equity valuations attractive and mega forces underpinning structural demand. We still like private credit but see dispersion ahead – highlighting the importance of manager selection. | |
| Beyond market cap benchmarks | We get granular in public markets. We favor DM government bonds outside the US Within equities, we favor EM over DM yet get selective in both. In EM, we like India which sits at the intersection of mega forces. In DM, we like Japan as mild inflation and corporate reforms brighten the outlook. | |
Note: Views are from a US dollar perspective, February 2026. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any particular funds, strategy or security.
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.
| Asset | Tactical view | Commentary | ||||
|---|---|---|---|---|---|---|
| Developed markets | ||||||
| United States |  |
We are overweight. Strong corporate earnings, driven in part by the AI theme, are supported by a favorable macro backdrop: continued Federal Reserve easing, broad economic optimism and less policy uncertainty, particularly on the trade front. | ||||
| Europe |  |
We are neutral. We would need to see more business-friendly policy and deeper capital markets for recent outperformance to continue and to justify a broad overweight. We stay selective, favoring financials, utilities and healthcare. | ||||
| UK | |
We are neutral. Valuations remain attractive relative to the US, but we see few near-term catalysts to trigger a shift. | ||||
| Japan | |
We are overweight. Strong nominal GDP, healthy corporate capex and governance reforms – such as the decline of cross-shareholdings – all support equities. | ||||
| Emerging markets | |
We are neutral. Economic resilience has improved, yet selectivity is key. We see opportunities across EM linked to AI and the energy transition and see the rewiring of supply chains benefiting countries like Mexico, Brazil and Vietnam. | ||||
| China | |
We are neutral. Trade relations with the US have steadied, but property stress and an aging population still constrain the macro outlook. Relatively resilient activity limits near-term policy urgency. We like sectors like AI, automation and power generation. We still favor China tech within our neutral view. | ||||
| Fixed income | ||||||
| Short US Treasuries | |
We are neutral. We see other assets offering more compelling returns as short-end yields have fallen alongside the US policy rate. | ||||
| Long US Treasuries |  |
We are underweight. We see high debt servicing costs and price-sensitive domestic buyers pushing up on term premium. Yet we see risks to this view: lower inflation and better tax revenues could push down yields near term. | ||||
| Global inflation-linked bonds | |
We are neutral. We think inflation will settle above pre-pandemic levels, but markets may not price this in the near-term as growth cools. | ||||
| Euro area government bonds | |
We are neutral. We agree with market forecasts of ECB policy and think current prices largely reflect increased German bond issuance to finance its fiscal stimulus package. We prefer government bonds outside Germany. | ||||
| UK Gilts | |
We are neutral. The recent budget aims to shore up market confidence through fiscal consolidation. But deferred borrowing cuts could bring back gilt market volatility. | ||||
| Japanese government bonds |  |
We are underweight. Rate hikes, higher global term premium and heavy bond issuance will likely drive yields up further. | ||||
| China government bonds | |
We are neutral. China bonds offer stability and diversification but developed market yields are higher and investor sentiment shifting towards equities limits upside. | ||||
| US agency MBS | |
We are overweight. Agency MBS offer higher income than Treasuries with similar risk and may offer more diversification amid fiscal and inflationary pressures. | ||||
| Short-term IG credit | |
We are neutral. Corporate strength means spreads are low, but they could widen if issuance increases and investors rotate into US Treasuries as the Fed cuts. | ||||
| Long-term IG credit | |
We are underweight. We prefer short-term bonds less exposed to interest rate risk over long-term bonds. | ||||
| Global high yield | |
We are neutral. High yield offers more attractive carry in an environment where growth is holding up – but we think dispersion between higher and weaker issuers will increase. | ||||
| Asia credit | |
We are neutral. Overall yields are attractive and fundamentals are solid, but spreads are tight. | ||||
| Emerging hard currency | |
We are overweight. A weaker US dollar, lower US rates and effective EM fiscal and monetary policy have improved economic resilience. We prefer high yield bonds. | ||||
| Emerging local currency | |
We are neutral. A weaker US dollar has boosted local currency EM debt, but it’s unclear if this weakening will persist. | ||||
Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Note: Views are from a US dollar perspective. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.
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
| Asset | Tactical view | Commentary | ||
|---|---|---|---|---|
| Equities | ||||
| Europe ex UK | |
We are neutral. We would need to see more business-friendly policy and deeper capital markets for recent outperformance to continue and to justify a broad overweight. We stay selective, favoring financials, utilities and healthcare. | ||
| Germany | |
We are neutral. Increased spending on defense and infrastructure could boost the corporate sector. But valuations rose significantly in 2025 and 2026 earnings revisions for other countries are outpacing Germany. | ||
| France | |
We are neutral. Political uncertainty could continue to drag corporate earnings behind peer markets. Yet some major French firms are shielded from domestic weakness, as foreign activity accounts for most of their revenues and operations. | ||
| Italy | |
We are neutral. Valuations are supportive relative to peers. Yet we think the growth and earnings outperformance that characterized 2022-2023 is unlikely to persist as fiscal consolidation continues and the impact of prior stimulus peters out. | ||
| Spain | |
We are overweight. Valuations and earnings growth are supportive relative to peers. Financials, utilities and infrastructure stocks stand to gain from a strong economic backdrop and advancements in AI. High exposure to fast-growing areas like emerging markets is also supportive. | ||
| Netherlands | |
We are neutral. Technology and semiconductors feature heavily in the Dutch stock market, but that’s offset by other sectors seeing less favorable valuations and a weaker earnings outlook than European peers. | ||
| Switzerland |  |
We are neutral. Valuations have improved, but the earnings outlook is weaker than other European markets. If global risk appetite stays strong, the index’s tilt to stable, less volatile sectors may weigh on performance. | ||
| UK | |
We are neutral. Valuations remain attractive relative to the U.S., but we see few near-term catalysts to trigger a shift. | ||
| Fixed income | ||||
| Euro area government bonds | |
We are neutral. Yields are attractive, and term premium has risen closer to our expectations relative to US Treasuries. Peripheral bond yields have converged closer to core yields. | ||
| German bunds | |
We are neutral. Potential fiscal stimulus and bond issuance could push yields up, but we think market pricing reflects this possibility. Market expectations for near-term policy rates are also aligned with our view. | ||
| French OATs | |
We are neutral. France faces continued challenges from elevated political uncertainty, high budget deficits and slow structural reforms, but these risks already seem priced into OATs and we don’t expect a worsening from here. | ||
| Italian BTPs | |
We are neutral. The spread over German bunds looks tight given its large budget deficits and growing public debt. Domestic factors remain supportive, with growth holding up relative to the rest of the euro area and Italian households showing solid demand to hold BTPs at higher yields. Domestic political pushback likely prevents defense spending from rising to levels that would resurface fiscal stability concerns. | ||
| UK gilts | |
We are neutral. Gilt yields are off their highs, but we expect more market attention on long-term yields through the government’s November budget, given the difficulty it has had implementing spending cuts. | ||
| Swiss government bonds | |
We are neutral. Markets are expecting policy rates to return to negative territory, which we deem unlikely. | ||
| European inflation-protected securities | |
We are neutral. We see higher medium-term inflation, but inflation expectations are firmly anchored. Cooling inflation and uncertain growth may matter more near term. | ||
| European investment grade | |
We are neutral on European investment grade credit, favoring short- to medium-term paper for quality income. We prefer European investment grade over the US Quality-adjusted spreads have tightened significantly relative to the US, but they remain wider, and we see potential for further convergence. | ||
| European high yield | |
We are overweight. The income potential is attractive, and we prefer European high yield for its more appealing valuations, higher quality and less sensitivity to interest rate swings compared with the US Spreads adequately compensate for the risk of a potential rise in defaults, in our view. | ||
Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Note: Views are from a euro perspective, February 2026. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.
Meet the authors
Jean Boivin
Wei Li
Axel Christensen
Ehsan Khoman
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