Emerging Markets Could Keep Surging

Emerging market (EM) equities are positioned to be the strongest performing global risk assets over the next decade, with the MSCI EM index projected to return 15% in 2026. Stratford Dennis, head of emerging market equities at Goldman Sachs, identifies attractive valuations, a weakening U.S. dollar, and light investor positioning as primary catalysts for growth. While China remains a significant component, the current preference lies with "EM ex-China" markets like Taiwan and Korea to capture AI exposure at more attractive valuations than U.S. tech peers. Brazil stands out as a top pick due to anticipated 250 basis point interest rate cuts and potential market-friendly election catalysts. Furthermore, emerging market AI stocks offer superior 30% year-over-year earnings growth estimates compared to 20% in the U.S. Near-term focus remains on U.S. labor market data to determine the Federal Reserve's trajectory for the first half of the year.