Investing.com — UBS continues to favor Chinese equities as a “key Overweight for the 2nd year running,” highlighting attractive micro and flow dynamics despite ongoing macroeconomic weakness.
In its EM 2026 Outlook note, UBS analyst Manik Narain said emerging market (EM) equities and currencies “enjoyed rare outperformance vs. the U.S.” in 2025, only the third such year since 2011.
The bank expects “slower full-year returns” in 2026, projecting “7-9% in equities, 5-7% in local, and 3-5% in hard currency debt,” but sees several “idiosyncratic EM opportunities” beneath the surface.
“China remains a key Overweight for the 2nd year running; despite the weak macro, the micro (and flow) picture in China remains attractive,” Narain wrote.
The analyst added that “anti-involution could instil further capex discipline into listed companies,” though benefits to the rest of EM are “far less clear.”
UBS expects MSCI Emerging Markets earnings to grow by “15%/10% over the next two years (spearheaded by AI),” following 18% growth in 2025.
Valuations are “0.7 standard deviations above the 10-year average,” but “visibility on growth and an absence of yield headwinds should help deliver c. 8% returns in 2026.”
The bank maintains a “relative value preference” for “China over India, Indonesia over Thailand, Internet over Autos,” and continues to see “Brazil offering favourable risk/reward.”
On the macro front, UBS believes the dollar’s stability may limit broad EM tailwinds: “With Fed easing almost fully priced, EM can’t passively lean on broad dollar depreciation as it did in ’25.”
Even so, UBS expects EM equities could “tactically outperform the U.S. into Q1 as the U.S. cyclically slows,” before moderating later in the year.
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