Emerging Markets: A strong opportunity for 2026

This article shares a market perspective from Smart’s Chief Investment Officer, Stuart Millar. It reflects our current view based on market conditions today and may change over time. It’s provided for information only and isn’t personal financial advice.

After a standout 2025, emerging market (EM) equities are back in the spotlight - and for good reason.

Let’s start with the numbers. Last year, the MSCI Emerging Markets Index returned over 30% in NZD terms, well ahead of the MSCI World Index. That kind of performance naturally raises the question: can the rally continue?

We think it can.

While we don’t expect a repeat of 2025’s exceptional gains, the drivers of EM strength remain firmly in place. Many EM central banks are now cutting interest rates, inflation is under control in several key markets, and the US dollar has softened-which can support EM currencies and returns. Add to that, a robust earnings outlook, with double-digit profit growth expected in four of the five largest EM countries in 2026, and you’ve got a compelling setup.

Valuations are another key part of the story. EM equities are trading at a roughly 40% discount to US equities on a forward price-to-earnings basis. That’s well below historical averages. In our view, this gap is too wide to ignore-especially when EM companies are delivering stronger earnings growth.

We’re not alone in this thinking. J.P. Morgan has highlighted emerging markets as well positioned for 2026, supported by factors such as lower local interest rates, stronger earnings growth and attractive valuations.¹. Goldman Sachs also expects EM to outperform, pointing to the combination of attractive valuations and a strong earnings outlook.² More cautious voices, like Schroders, acknowledge the value on offer, and emphasise emphasise the importance of remaining disciplined and balanced after a strong period for markets³

At Smart, we’re leaning into the opportunity. We see EM as a key part of a diversified global equity strategy in 2026. The long-term themes-AI-driven demand, supply chain shifts, and rising domestic spending-are playing out across Asia, Latin America, and beyond. They’re structural shifts that could reshape global growth for years to come.

For investors looking to add more emerging markets to their portfolios, Smart and SuperLife offer a range of options. Our Smart Emerging Markets ETF provides broad exposure to the MSCI Emerging Markets Index, while SuperLife investors can access EM through diversified or standalone fund options. Whether you’re building a core portfolio or looking to add a tactical tilt, these tools make it easy to gain EM exposure in a cost-effective, transparent way.

As always, diversification remains key. But in a world where developed markets are facing stretched valuations and slowing growth, we believe emerging markets deserve a bigger seat at the table.

Investing involves risk. Past performance is not an indicator of future returns. We recommend you seek professional assistance from a licensed Financial Advice Provider before making any investment decision. The Smart Exchange Traded Funds and SuperLife range of managed investment schemes are issued by Smartshares Limited (Smart). The product disclosure statements are available at smartinvest.co.nz and superlife.co.nz/legal.

Looking to diversify your portfolio?

You can learn more about Smart’s emerging markets ETFs here:

• Smart Emerging Markets ETF

• Smart Emerging Markets ESG ETF

Footnotes

^1.JPMorgan - Emerging markets outlook

^2.Goldman Sachs - Emerging markets could keep surging

^3.Schroders - Why now is the time to stay invested and be active (but not too active!)