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Last year, the widely followed MSCI Emerging Markets Index returned 34.4%, finally and sharply outperforming the S&P 500 along the way.
Advisors and investors pondering if a sequel is in store for developing world stocks in 2026 may not want to wait too long because the movie has already started. As of Feb. 18, the MSCI index’s year-to-date is already more than a third of what it was for all of 2025 – impressive work in less than two months.
Yes, the resurgence of emerging markets stocks and the asset class’s 2026 prospects merit scrutiny, but upon performing that due diligence, market participants are apt to like what they find, including the point that idiosyncratic macroeconomic pressures aren’t as acute as they’ve been in previous eras.
“In the last 25 years, emerging markets (EMs) collectively have meaningfully reduced their macroeconomic and financial market vulnerabilities, through stronger policy frameworks, improved external balances, and deeper domestic financial markets. EM vulnerabilities today are more likely to be idiosyncratic and localized,” observes FTSE Russell.
More Catalysts for Emerging Markets Stocks
As advisors know, another catalyst for international equities, both developed and emerging, is the weak dollar. Indeed, the greenback was one of the world’s worst-performing major currencies last year and even with that, some market observers believe the dollar is still expensive relative to peers. So even if it doesn’t decline as much this year as it did in 2025, there’s room to downside for the dollar and that’s positive for EM stocks.
“One overlay that ties the regions together is the dollar. Historically, a weaker USD has been supportive of EM assets by easing external financing conditions and improving the debt-service for dollar-linked liabilities,” notes Jordan Jackson, global market strategist at JPMorgan Asset Management. “While we don’t expect another 10% correction in the dollar in the short term, we do foresee an environment where the dollar can gradually decline 2-4% per annum over the next 5-7 years.”
As Jackson notes, there’s also room for developing Asian economies not named China to contribute to the emerging markets story in 2026.
Earnings in some of those nations are “supported by macro tailwinds tied to Europe’s defense spending pivot and the AI capex super-cycle,” he adds. “Europe’s rearmament is reshaping procurement, and South Korea has emerged as a fast-delivery, NATO-compatible supplier. In addition, the AI buildout in the U.S. and China continues to cascade through the semiconductor stack, supporting Taiwan exporters. ASEAN economies capture spillover too like Malaysia’s packaging/testing ecosystem and Vietnam’s electronics base.”
Allocations Could Rise
Something else advisors know is that there was a time when market participants, both professional and retail, were enthusiastic about developing economies, but the ebullience waned and when it did, it ushered in a span of more than a decade of investors being lightly allocated to developing economies.
That scenario could change this year, potentially providing ballast to the outlook for this resurgent asset class.
“Portfolio allocations to EMs deserve another look. EM equity market capitalization relative to global equities peaked post-GFC in October 2010 at around 13% and was 10.2% at the end of 2025,” notes FTSE Russell. “Emerging markets and developing economies' share of global GDP is estimated by the IMF at 41% (2025) and expected to rise to 44% (2030).”
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