Emerging markets poised to outperform in H2 2026 amid attractive valuations, AI-led growth: HSBC
New Delhi, July 19
Emerging markets are expected to remain well placed in the second half of 2026, with attractive valuations, easing inflation and monetary policy support likely to sustain their relative outperformance, while investors may increasingly favour equities linked to artificial intelligence and the broader technology cycle, according to a research report by HSBC.
The report said the global economy faces a complex set of supply shocks, but markets have remained resilient, supported by strong corporate profits. While the outlook remains uncertain and inflation sticky, HSBC maintained a cautious pro-risk stance, favouring access to growth in regions such as Asia and emerging markets.
Emerging market equities delivered a 24 per cent return in US dollar terms in the first half of 2026, more than double the performance of US and developed market equities excluding the US. HSBC said the outperformance was supported by strong fundamentals, with AI capital expenditure supporting profits in South Korea and Taiwan, while firmer commodity prices benefited countries in Latin America.
The report noted that valuations in emerging markets remain attractive, with the MSCI Emerging Markets Index trading at 11.5 times forward price-to-earnings compared with 17.5 times for global equities. India and China were highlighted as markets that could benefit from a stronger second-half performance.
"AI winners" are expected to remain a key investment theme, although the report cautioned that market performance could broaden beyond the technology sector. The research noted that investors may increasingly look for companies and sectors positioned to benefit from the wider economic impact of AI.
HSBC also highlighted a potential shift in the factors driving central bank policy. While concerns over oil prices and geopolitical risks had previously supported a hawkish stance, the focus is increasingly moving towards stronger economic growth and resilient corporate profits. The report said the Federal Reserve could remain on hold through 2026.
Asian equities, particularly those exposed to the AI supply chain, have already delivered strong returns. However, HSBC cautioned that high tech-sector earnings growth and higher capital expenditure could continue to support the region while also raising the risk of volatility.
The report also highlighted the "Jevons paradox" in AI, under which cheaper and more efficient AI usage could increase overall demand for computing resources, potentially supporting further investment in the technology ecosystem.
— ANI
Reader Comments
Good to see EM markets outperforming. As an Indian investor, the 11.5x PE compared to 17.5x for global equities makes a lot of sense for value hunting. But the caution on volatility from AI capex is wise - we've seen this movie before with the dot-com bubble. Let's hope the RBI keeps inflation in check!
All these reports sound promising but ground reality in India is different. The rupee is under pressure, FIIs are unpredictable, and our tech sector faces global headwinds. HSBC should also highlight how domestic consumption and manufacturing need to pick up for sustained growth. 🏭
As someone who's invested in EM funds for years, this is encouraging. The AI narrative is real - I've seen our Indian software teams driving major AI solutions. The Jevons paradox point is particularly sharp - cheaper AI means more demand, which should benefit Indian IT services companies long term. Just need to stay diversified.
Attractive valuations yes, but foreign investors keep pulling money out at the slightest global risk. The Fed staying on hold till 2026 means our interest rate differential advantage might narrow. Still, if AI capex continues flowing to India's tech hubs, we could see real job creation. But let's not ignore the inflation pain at home. 📉
Good report. But let's be honest - 'AI-led growth' often means top IT companies get richer while the broader economy lags. I hope Indian policymakers use this opportunity to push for manufacturing and startup ecosystem growth beyond just services. The Jevons paradox point is interesting though - cheaper computing could democratise access.
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