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Emerging markets were a big upside surprise in 2025, even relative to strong expectations. Driven by strong earnings across regions and favorable macroeconomic trends, stocks in the developing world are on pace to record their best year since 2017, according to Goldman Sachs Research. A key benchmark, the MSCI Emerging Markets Index, is on track to return nearly 30% this year.
This is going to be a tough act to follow, says Kamakshya Trivedi, chief foreign exchange and emerging markets strategist at Goldman Sachs. “Looking ahead, the performance obviously sets a very high bar to replicate,” Trivedi says. “But some of the tailwinds present in 2025 are going to repeat in 2026, so we still expect good returns after a great 2025.”
Those tailwinds include the resilience of China’s exports, a weakening US dollar, and the economic benefits of falling commodity prices. Trivedi forecasts that emerging markets in 2026 will rise about 13% in terms of price, and roughly 16% on a total return basis.
What’s striking in the current cycle, he says, is how the breadth of emerging markets is providing investors with a way to moderate the sudden reversals in the US stock market stemming from the concentration in artificial intelligence (AI) and technology stocks. The asset class’s regional diversification brings balance to portfolio allocation, Trivedi says, especially as macroeconomic conditions are improving in the developing world.
We spoke with Trivedi about the outlook for emerging markets, how rate cuts by the US central bank will ripple through these assets, and the diversification these securities may offer investors. In addition, Trivedi described how China is “exporting disinflation” to other markets, and why lower commodity prices can be beneficial in developing nations.
How will emerging markets build on the performance of 2025?
The combination of unchallenging valuations and a favorable macro backdrop boosted performance in 2025. We’ve seen central banks easing interest rate policy across a whole range of emerging markets. And despite tariff-related volatility across many emerging markets, they have proven to be very resilient. We expect more of this in the coming year—resilient growth and further easing across emerging markets.
The geographic diversification that emerging markets offered throughout the year is also very important. In the first quarter, stocks in emerging Europe increased 17%. In the second quarter, South Korea and Taiwan recorded a 28% performance. Then outperformance shifted to China and South Africa in the third quarter, where stocks increased around 20% in each market. As we look ahead, that geographical diversification should help again.
We expect the bulk of the returns in emerging markets in 2026 to come from rising earnings. Technology was the leading sector in emerging markets this year, especially in the north Asian markets of South Korea and Taiwan, and in China, where the rally has been powered by the AI theme. We expect another strong year: Earnings per share are expected to increase 37% in the region’s technology hardware and semiconductor sectors and almost 15% in the internet, media, and entertainment sector.
How have emerging markets responded to shocks such as US credit concerns or volatility in the AI and technology sectors?
This year we noted how emerging markets, as measured by the MSCI EM index, have become more resilient to global shocks and have responded less severely than they have historically. When concerns mounted—both in October on renewed US-China trade tensions and in November about a possible bubble in AI—and triggered a sell-off in US stocks, the index declined less than the S&P 500 on average.
The nice thing about emerging markets as an asset class is regional diversification. In terms of portfolio allocation, we want to balance technology sectors that have been doing very well with markets such as Brazil and India that are less tech-oriented but have interesting growth stories of their own.
Take South Africa, for example. You have strong profitability in mining, which reflects the strong performance of precious metals globally this year. South African equities rose 60% by December. Good things are also happening domestically in South Africa. There is fiscal consolidation for the first time in years. In November, South African debt was upgraded. And the central bank has reduced its inflation target, so there is also room for outperformance in the more domestic sectors.