Chetan Sehgal, Lead Portfolio Manager of Templeton Emerging Markets Investment Trust (TEMIT) shares his outlook on the Emerging Markets (EM) landscape for the year ahead
We leave a strong year behind, with EM equities racing ahead of developed market equities in 2025. While a repeat of such exceptional performance may be too optimistic, the outlook for EM equities in 2026 remains constructive. This outlook is underpinned by several supportive themes that continue to drive earnings momentum across the asset class.
Artificial Intelligence Supply Chain
AI will remain a key driver within the broader information technology space, and the structural growth potential of AI continues to underpin the investment case across key EM markets. Importantly, the opportunity set extends beyond the direct semiconductor beneficiaries in Taiwan and Korea. Attractive exposure is also emerging along the AI supply chain -such as electronic manufacturing services, power supply units and printed circuit-board companies.
In parallel, select China-based internet companies are increasingly embedding AI into their ecosystems, potentially leading to cost efficiencies as well as incremental growth on top of traditional e-commerce and advertising models. Leading Chinese internet names are major cloud service providers and should benefit from rising demand for AI-related workloads. They are developing competitive AI models and developing semiconductor chips, positioning themselves to participate more directly in the AI stack.
China’s industrial leadership
The global demand for power continues to rise, a trend accelerated by the energy needs of data centres supporting the AI boom. This has created a surge in demand for related infrastructure, including energy storage batteries and related power equipment. Chinese industrial companies are at the forefront of this trend, delivering growth in both their domestic market and, increasingly, through exports. Similarly, Chinese EV manufacturers are leveraging their technological advantages to gain international market share, a trend that is anticipated to continue throughout 2026.
Policy shifts and domestic reforms
Many EM central banks have continued to ease monetary policy to support domestic demand and balance broader policy objectives, and this trend is expected to persist into 2026.
In China, the anti-involution campaign aims to curb excessive price competition and industrial overcapacity. While it is too early to gauge the success of this initiative, it may begin to shift incentives away from margin-destructive competition, particularly in sectors where policy scrutiny is rising. For well-managed companies, this could reduce the need for defensive spending to protect market share, improving earnings quality and enabling a more rational allocation of resources over time.
In India, consumption-focused policy support has been seen in recent consumption trends. In 2026, the benefits of these reforms should become more evident in corporate earnings.
In Latin America, Brazil is well-positioned to benefit from a more accommodative interest-rate environment in 2026, although upcoming elections could introduce some market volatility. Mexico, meanwhile, continues to be supported by nearshoring dynamics and its strategic proximity to the United States.
Trade, tariffs and resilience
US tariffs have now largely been crystallised with trade agreements with most countries. At time of writing, some EM countries, including Brazil and India, remain in active trade talks with the United States. However, these economies are relatively less reliant on exports than some peers and are therefore somewhat more insulated from direct tariff shocks.
EM equities have already demonstrated resilience by recovering from the initial tariff-related disruptions in 2025, and that adaptability – through supply-chain adjustments, trade rerouting and domestically anchored growth drivers – should continue to support the asset class.
Conclusion
The investment landscape in EMs for 2026 is shaped by compelling long-term themes, including leadership in AI-related supply chains, technology, digitalisation, the premiumisation of consumption, and health care. These structural growth areas, combined with supportive valuations in select parts of the EMs, underpin a constructive outlook for 2026.
