Interview
Emerging Markets Could Keep Surging
- Goldman Sachs' official house view projects MSCI Emerging Markets (EM) equities to deliver 15% returns in 2026, following a strong 2025 performance.
- The firm forecasts EM equities will be the strongest-performing global risk asset class over the coming decade, citing attractive valuations, a weaker dollar, and underweight positioning.
- Stratford Dennis, Head of Emerging Market Equities, recommends a "diversification trade" favoring broad EM exposure over specific concentrated bets on China.
- He argues China's 2025 rally was driven primarily by multiple expansion rather than earnings growth, making valuations less attractive compared to the broader EMX China index.
- The firm prefers EMX China to gain direct dollar exposure, which the China-specific trade lacks.
- Regarding AI exposure, the firm suggests targeting Taiwan and Korea rather than China, noting that China's demographics and consumer struggles present structural headwinds.
- Goldman Sachs views Latin America, specifically Brazil and Mexico, as key regions for 2026 performance.
- Brazil remains a top choice despite a "muddier" election picture, driven by anticipated 250 basis points in interest rate cuts from the central bank.
- High real interest rates in Brazil previously attracted local capital to fixed income; rate cuts are expected to trigger a reversion of funds into equities.
- The firm notes Brazil offers a risk-free rate of approximately 12%, serving as a strong vehicle for emerging market dollar exposure if currency risk is hedged.
- A market-friendly candidate winning the upcoming Brazilian election could act as a catalyst for market outperformance in the mid-to-later part of the year.
- The firm identifies "EM AI" as a distinct investment opportunity where valuations are more attractive than US counterparts.
- Estimates project 30% year-over-year earnings growth for EM AI stocks, compared to 20% for US peers.
- Goldman Sachs released a custom "EM AI basket" with global exposure, primarily weighting China, Taiwan, and Korea, with secondary exposure to semiconductors and Latin America.
- Investors should monitor upcoming US employment data later this week to clarify the state of the US labor market.
- Gaining clarity on US labor trends is critical for forecasting Federal Reserve actions in Q1 and Q2 of 2026.
- Chris Hussey notes that while the firm remains bullish on global AI, the relative value proposition is stronger in emerging markets compared to the "historic run" seen in US tech.
- The discussion concludes with a disclaimer that views are subject to change and do not constitute investment advice, noting the material may contain forward-looking statements not guaranteed to occur.