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HSBC Forecasts Emerging Markets Outperform in Second Half of 2026, Driven by AI Growth and Attractive Valuations
HSBC’s Global Investment Research released a market outlook on 19 July 2026 that projects emerging‑market equities to continue outperforming in the second half of the year. The research cites attractive valuations, easing inflation, and ongoing monetary‑policy support as key factors that should sustain the relative outperformance of these markets compared with developed peers.
In the first half of 2026, the MSCI Emerging Markets Index delivered a 24 % return in U.S. dollar terms, more than twice the performance of U.S. and other developed‑market indices excluding the United States. HSBC attributes the outperformance to strong fundamentals, including significant artificial‑intelligence (AI) capital expenditure in South Korea and Taiwan, and firmer commodity prices that have benefited Latin‑American economies. Corporate profits across the region remained robust, providing a cushion against the sticky inflation that has persisted globally.
Valuation comparisons reinforce the appeal of emerging markets. The MSCI Emerging Markets Index trades at 11.5‑times forward price‑to‑earnings, whereas the global equity benchmark sits at 17.5‑times. HSBC highlights India and China as particular opportunities for the latter half of the year, noting that both economies have shown resilience amid global supply‑chain disruptions and are positioned to benefit from continued AI investment.
AI has emerged as a central investment theme in the research. HSBC says “AI winners” are likely to remain attractive, but cautions that performance could broaden beyond the technology sector as companies across industries integrate AI into their operations. The report also notes a potential shift in the drivers of central‑bank policy. While oil‑price volatility and geopolitical tensions previously underpinned a hawkish stance, the focus is now moving toward stronger economic growth and resilient corporate earnings. According to the research, the Federal Reserve may keep rates unchanged through 2026.
Asian equities, particularly those linked to the AI supply chain, have already posted strong gains. HSBC warns that high‑tech earnings growth and elevated capital‑expenditure levels could continue to support the region, but they also raise the risk of volatility. The report stresses that investors should monitor the balance between growth‑driven spending and potential market corrections.
The research also discusses the “Jevons paradox” in the context of AI. It explains that cheaper and more efficient AI usage can increase overall demand for computing resources, which in turn could drive further investment in the technology ecosystem. This dynamic may reinforce the growth trajectory for companies involved in chip manufacturing, data‑center infrastructure, and cloud services.
In summary, HSBC’s outlook remains cautiously optimistic. Emerging‑market equities have shown resilience, supported by solid corporate profits and favorable valuation multiples. Inflation is easing, and monetary policy is expected to remain accommodative. The continued expansion of AI capital expenditure, especially in South Korea, Taiwan, India, and China, is expected to underpin the region’s performance in the second half of 2026. Nonetheless, the research acknowledges uncertainties related to commodity price swings, potential volatility in high‑tech sectors, and the broader macroeconomic environment.
The report underscores that while emerging markets appear well positioned, investors should remain vigilant to shifts in central‑bank policy, commodity dynamics, and the evolving impact of AI across sectors.
In the first half of 2026, the MSCI Emerging Markets Index delivered a 24 % return in U.S. dollar terms, more than twice the performance of U.S. and other developed‑market indices excluding the United States. HSBC attributes the outperformance to strong fundamentals, including significant artificial‑intelligence (AI) capital expenditure in South Korea and Taiwan, and firmer commodity prices that have benefited Latin‑American economies. Corporate profits across the region remained robust, providing a cushion against the sticky inflation that has persisted globally.
Valuation comparisons reinforce the appeal of emerging markets. The MSCI Emerging Markets Index trades at 11.5‑times forward price‑to‑earnings, whereas the global equity benchmark sits at 17.5‑times. HSBC highlights India and China as particular opportunities for the latter half of the year, noting that both economies have shown resilience amid global supply‑chain disruptions and are positioned to benefit from continued AI investment.
AI has emerged as a central investment theme in the research. HSBC says “AI winners” are likely to remain attractive, but cautions that performance could broaden beyond the technology sector as companies across industries integrate AI into their operations. The report also notes a potential shift in the drivers of central‑bank policy. While oil‑price volatility and geopolitical tensions previously underpinned a hawkish stance, the focus is now moving toward stronger economic growth and resilient corporate earnings. According to the research, the Federal Reserve may keep rates unchanged through 2026.
Asian equities, particularly those linked to the AI supply chain, have already posted strong gains. HSBC warns that high‑tech earnings growth and elevated capital‑expenditure levels could continue to support the region, but they also raise the risk of volatility. The report stresses that investors should monitor the balance between growth‑driven spending and potential market corrections.
The research also discusses the “Jevons paradox” in the context of AI. It explains that cheaper and more efficient AI usage can increase overall demand for computing resources, which in turn could drive further investment in the technology ecosystem. This dynamic may reinforce the growth trajectory for companies involved in chip manufacturing, data‑center infrastructure, and cloud services.
In summary, HSBC’s outlook remains cautiously optimistic. Emerging‑market equities have shown resilience, supported by solid corporate profits and favorable valuation multiples. Inflation is easing, and monetary policy is expected to remain accommodative. The continued expansion of AI capital expenditure, especially in South Korea, Taiwan, India, and China, is expected to underpin the region’s performance in the second half of 2026. Nonetheless, the research acknowledges uncertainties related to commodity price swings, potential volatility in high‑tech sectors, and the broader macroeconomic environment.
The report underscores that while emerging markets appear well positioned, investors should remain vigilant to shifts in central‑bank policy, commodity dynamics, and the evolving impact of AI across sectors.
