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India, Indonesia Lag as Emerging Markets Rally in 2026, Deutsche Bank Reports

Emerging market equities had a strong start to 2026, with the MSCI EM index rising over 8% in January. However, India and Indonesia were the only major markets within this group to post declines for the month. Indonesia's underperformance was linked to governance and liquidity concerns, including a potential downgrade by MSCI. Despite this, most EM asset classes showed resilience amid global volatility, with bonds extending multi-month positive streaks.

Key Points: India, Indonesia Underperform in 2026 EM Rally: Deutsche Bank

  • EM equities rose over 8% in Jan 2026
  • India and Indonesia were sole major decliners
  • Indonesia faces MSCI downgrade risk
  • Peru, South Korea, Turkiye were top performers
  • EM bonds extended positive streaks
2 min read

India, Indonesia only major EM markets in 2026 to decline amid global EM rally: Deutsche Bank

Deutsche Bank reports India and Indonesia were the only major emerging markets to decline in early 2026, while a global EM rally saw strong gains elsewhere.

"The only major EM equity markets down for the month were India and Indonesia - Deutsche Bank report"

New Delhi, February 4

Emerging markets showed notable resilience despite heightened volatility at the start of 2026. However, India and Indonesia remained underperformers, even as emerging market assets delivered a strong start to the year, according to a Deutsche Bank report.

The report noted that emerging market (EM) equities posted robust gains in January, with the MSCI Emerging Markets index rising over 8 per cent, supported by broad-based outperformance across regions.

It stated "The only major EM equity markets down for the month were India and Indonesia - the latter under stress on concerns around governance and liquidity after MSCI warned of potentially downgrading them to frontier market status".

Markets such as Peru, South Korea and Turkiye emerged as top performers during the month, reflecting improved risk appetite and catch-up in allocations amid supportive global macro conditions.

However, India and Indonesia were the only major EM equity markets to register declines. Indonesia came under pressure due to concerns over governance and liquidity, after MSCI flagged the possibility of a downgrade to frontier market status.

Despite increased market volatility driven by geopolitical risks, fiscal concerns and shifting narratives around artificial intelligence and global growth, the report highlighted that most EM asset classes managed to stay resilient.

EM hard currency sovereign bonds recorded modest gains, extending their positive return streak to nine consecutive months, while EM local currency debt posted its sixth straight monthly gain, aided by currency strength and carry returns.

Looking ahead, Deutsche Bank said emerging markets remain fundamentally well-positioned to benefit from improved global policy support, easing tariff-related pressures and relatively stable energy prices, though greater differentiation across markets is expected as the global policy easing cycle matures

It stated "With market vol picking up into end of last month, a lot of the EM winners from turn of the year are starting February off under risk of unwinding in positioning".

- ANI

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Reader Comments

P
Priya S
A temporary blip, I believe. Our fundamentals are strong. Look at the long-term story - demographics, digital infrastructure, and manufacturing push. Markets go up and down. This is a buying opportunity for savvy investors. 🇮🇳
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Rohit P
Interesting to see South Korea and Turkiye as top performers. Maybe we can learn something from their strategies. Our regulators should engage more with global index providers like MSCI to understand their concerns better. Proactive communication is needed.
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Sarah B
As an NRI investor, this report gives me pause. I want to invest in India, but volatility and underperformance compared to other EMs is worrying. Hoping for more stability and clarity on reforms to boost foreign investment.
K
Karthik V
The mention of "unwinding in positioning" at the end is crucial. Could be a healthy correction after a long bull run. Retail investors shouldn't panic. SIPs in good mutual funds remain the best strategy for the common man.
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Michael C
Respectfully, while the long-term outlook is positive, we cannot ignore short-term signals. Being grouped with Indonesia, which faces governance concerns, is not a good look. Transparency and liquidity measures need immediate attention from SEBI and the finance ministry.

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