BlackRock is going into 2026 positive on emerging markets, as artificial-intelligence (AI) capital expenditure, supply-chain shifts and commodity dynamics continue to drive the asset class after its best January performance in 14 years.
While emerging markets had lagged behind developed markets for an extended period, there was something of a turnaround last year. FE Analytics shows the MSCI Emerging Markets index made a 24.4% total return in 2025 in sterling terms, almost double the gain of the developed-market MSCI World.
What’s more, the emerging markets index was up another 6.7% in January, the highest in 14 years (the index made a 9.7% total return in January 2012). In contrast, the MSCI World made just 0.2% last month.
Performance of emerging and developed market stocks in 2025
Source: FE Analytics. Total return in sterling between 1 Jan and 31 Dec 2025.
In its latest note, BlackRock said it prefers hard currency emerging market debt (EMD) and is selective in emerging market equities. While the asset management house is overweight emerging market assets overall, it is leaning into hard currency debt, pointing to improved fiscal policy in large emerging market countries that contrasts with developed-market leverage.
Elections and currency volatility favour hard-currency EMD over local-currency bonds, BlackRock Investment Institute said, with Brazil cited as an example of potential currency volatility ahead of its October general election.
The institute likes high-yield issuers in emerging markets, arguing that heightened dispersion is creating opportunities for active returns.
In equities, selectivity is driven by stark differentiation across markets. South Korean equities have gained over 20% following substantial 2025 returns, while Indian markets continue to underperform despite a recent trade agreement with the US.
“We think such differentiation among emerging markets rewards an active approach and being selective,” the BlackRock Investment Institute said.
The firm – which is the largest asset manager in the world – said South Korea and Taiwan benefit from their strength in manufacturing AI hardware, especially semiconductors. The AI theme has broadened out to these markets over the past year, driving their recent gains.
The big increase in AI capital spending plans announced by US mega-cap tech ‘hyperscalers’ should be another positive, the institute’s strategists said. “Markets benefiting from even more AI capex stand out,” it noted.
Emerging markets are key to the AI buildout from industrial metals to manufacturing supply chains. Copper and other critical industrial metals essential to AI infrastructure are predominantly sourced from emerging economies.
In China, BlackRock favours leaders in AI, automation and renewable energy, which are part of China’s “new economy”.
The institute also sees the rewiring of global supply chains benefiting Mexico, Brazil and Vietnam. “Immutable economic laws – such as supply chains, which can’t be rewired overnight – are easing policy uncertainty on trade and should support a risk-on stance in EM, encouraging further capital inflows and firmer currencies,” the BlackRock Investment Institute said.
Stronger commodity prices are a boon to Latin America, the institute said. BlackRock’s strategists highlighted commodity-linked stocks, noting that persistent supply constraints are pushing up commodity prices.
This represents another potential boost for emerging markets, especially Latin America, as copper and similar materials required for AI technology infrastructure come primarily from producers in these countries.
“We are also seeing mega forces trump the traditional macro in emerging markets,” the BlackRock Investment Institute said, as AI, demographics and commodity supply constraints are currently the main tailwinds.
India’s favourable population structure stands in contrast to ageing developed economies, the institute noted, offering positives even as India currently lags in performance.
“We see bullish themes that drove emerging market outperformance in 2025 still playing out – though we favour selectivity as dispersion rises,” BlackRock Investment Institute finished.
The institute expects both emerging market stocks and bonds to be supported by resilient global economic growth and a stable to softer US dollar.
Central banks across the world are tilting towards monetary easing, with the Federal Reserve responding to labour market softness. This provides a stable macro backdrop for emerging economies, even with episodic, policy-driven volatility, the strategists said.