Emerging markets, after a period of relative dormancy throughout the previous decade, witnessed a notable resurgence in 2025. This renewed vigor suggests that the window of opportunity for investors is far from closed. The anticipated acceleration of earnings growth serves as a powerful catalyst, potentially driving continued outperformance in these dynamic economies. Moreover, despite their recent gains, emerging market equities continue to present an attractive valuation proposition, trading at a significant discount when compared to their counterparts in developed markets. This combination of growth potential and value offers a compelling landscape for strategic investment.
A critical driver for this optimistic outlook is the projected earnings growth in emerging markets. For 2026, consensus estimates point to a remarkable 18% earnings per share (EPS) growth, a figure that comfortably surpasses projections for developed economies. This robust growth trajectory is underpinned by several factors. Many emerging market nations are experiencing demographic tailwinds, with younger populations contributing to expanding labor forces and rising consumer demand. Furthermore, these economies are often at earlier stages of industrialization and technological adoption, allowing for higher growth rates as they catch up to more mature markets. Innovations in sectors like artificial intelligence are also playing a crucial role. While developed markets often lead in AI research and development, emerging markets are rapidly becoming key suppliers of essential infrastructure components for AI. This positions them to benefit from the global AI boom without necessarily bearing the same level of speculative risk, offering more durable earnings streams due to lower capital intensity.
Beyond macroeconomic trends, a significant transformation is underway at the corporate level within emerging markets: improved corporate governance. South Korea stands out with its 'value-up' initiative, aiming to enhance shareholder returns and reduce the persistent 'Korea discount' that has historically plagued its equities. Financial institutions and conglomerates in South Korea, renowned globally for their leadership in memory, automotive, and defense industries, are embarking on ambitious programs to unlock shareholder value. Similarly, China is increasing its focus on delivering stronger shareholder returns. These reforms are not merely cosmetic; they represent a fundamental shift towards greater transparency, accountability, and shareholder-friendly practices. Such changes are vital for narrowing valuation discrepancies and attracting long-term capital, thereby reinforcing the investment appeal of these markets. As these structural improvements take hold, they are expected to foster a more stable and predictable investment environment, further justifying the re-evaluation of emerging market equities.
In summary, the narrative for emerging markets is shifting from one of underperformance to a story of resurgence, underpinned by strong earnings growth and significant valuation advantages. The combination of favorable demographic trends, a pivotal role in the global AI supply chain, and proactive corporate governance reforms creates a robust case for sustained investment. This dynamic environment suggests that emerging markets are not just recovering but are strategically positioning themselves for a period of sustained prosperity, offering investors a unique opportunity for diversified growth.