By Reshma Kapadia

Wall Street strategists are sticking with their calls for emerging markets to outperform this year after last year's stellar run. They remain bullish despite -- and perhaps because of -- the ructions in the global order.

The iShares MSCI Emerging Markets ETF is up 7.2% so far this year compared with just 1% for the S&P 500.

A team led by J.P. Morgan equity strategist Mislav Matejka wrote Monday that prospects for emerging markets should hold up relatively well despite the recen t spike in geopolitical volatility and President Donald Trump's calls to impose 100% levies on Canada. They see greater near-term escalation risk in developed markets, including Europe.

Among the reasons the team believes emerging markets can outperform again this year: 14 out of 23 emerging market central banks are still expected to cut interest rates from current levels; it expects the dollar to continue to weaken; any economic improvement in China would be a positive surprise; and artificial intelligence-related investments in emerging markets are outperforming their U.S. peers and still relatively cheaper.

While a basket of U.S. AI stocks have lagged behind the S&P 500 by 300 basis points since mid-December, the team notes that AI plays in emerging markets, mostly in Asia, are still showing strong momentum.

Goldman Sachs is also bullish. In a note to clients Monday, Andrew Tilton and team see the MSCI Emerging Markets on track for 17% total return, buffeted by improving earnings growth of 19% versus 12% last year.

Though valuations have risen, Tilton and team note that is the case in all asset cases and emerging market valuations are less forbidding than those in developed markets, representing a 40% discount to the U.S. stock market. Plus, most investors still have little in emerging markets.

Underpinning their optimism is Goldman's outlook for sturdy global economic growth with low inflation, easier monetary policy, and improved fiscal situations in some economies.

Risks include politics -- including an important presidential election this fall in Brazil. Increased protectionism is another threat. Among exporters, Goldman sees increasing importance to "competitive differentiation": Taiwan's cutting-edge semiconductor technology, India's services exports, or a critical role in China's supply chains -- such as Indonesia in the battery supply chain.

Goldman's favored markets include tech-heavy South Korea and Taiwan, along with China for its broad-based competitiveness. South Africa is benefiting from an easing in monetary policy and India stands to benefit from a recovery in spending by rural consumers, helped by increasing growth in bank credit and easing monetary policy. Brazil is another favored market, especially as strategists expect interest rates to start coming off very-high levels.

J.P. Morgan favors South Korea, India, Brazil, and China, where the economy is still struggling but policies have been shifting to support the private sector and stabilize growth. South Korean stocks are boosted by strong gains in Samsung and SK Hynix on the back of a surge in memory prices. The two stocks account for nearly half of the iShares MSCI South Korea ETF and J.P. Morgan analysts see further gains as due to supply and demand dynamics in the memory market.

Another plus for the asset class, Matejka and team note, is bullishness for metals that are rich in many emerging markets. J.P. Morgan upgraded the mining sector to overweight last March and still sees further gains for precious and industrial metals prices.

Write to Reshma Kapadia at reshma.kapadia@barrons.com

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January 26, 2026 14:36 ET (19:36 GMT)

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