Emerging-market stocks are rallying three times as fast as US equities this year, and their lead may widen further if relative share valuations are any guide.
MSCI’s Emerging Markets Index has climbed 16% since the start of 2026, versus a gain of almost 5% for the S&P 500 Index. The gauge has outperformed the US benchmark for five straight quarters, and April’s rebound is putting it on track for a sixth.
On Monday, the index returned to record highs, eclipsing the previous peak hit before the war started in Iran. Yet, when compared with the US market, emerging-market shares screen as cheaper than at the start of the war, reinforcing the case for investors to add exposure.
Cheap valuations are among a trio of factors underpinning the sector’s bullish outlook, according to Varun Laijawalla, a portfolio manager at Ninety One. He cites “the outlook for the dollar, which is likely to have peaked, a structurally better earnings picture for EM, and extreme valuation spreads relative to the US that have historically presented strong buy signals for EM.”
That view is confirmed by the data. Comparing forward earnings multiples, MSCI’s emerging index now trades at a 44% discount to the S&P 500 — the biggest gap since April 2025.
The discount isn’t a sign of weakness. Emerging stocks look cheaper versus the US market because analysts have lifted profit forecasts for emerging-market companies by 30% this year, dwarfing an average 10% upgrade for S&P 500. Earnings estimates represent the denominator in the price-to-earnings ratio, so when they climb, valuations drop — even as share prices rise.
A major chunk of those upgrades is tied to Asian technology powerhouses, whose results hint at insatiable demand for artificial intelligence chips. Taiwan Semiconductor Manufacturing Co., Samsung Electronics Co. Ltd. and SK Hynix Inc. are the names at the heart of the AI supply chain, and together they comprise over a fifth of the MSCI gauge.
“The cheap-looking price-earnings valuation of the EM index has much to do with the chunky estimate upgrades for three technology hardware stocks, which are central to the AI wave,” said Hasnain Malik, head of EM equity and geopolitical strategy at Tellimer.
There are signs, moreover, that the earnings renaissance is spreading beyond Asian tech, a sign that the stock rebound is set to extend.
Profit projections for Asian companies have jumped 35% this year, leading the pack. Yet Latin American firms’ estimates have grown by over a fifth, thanks to commodity windfalls. Upgrades are broadening out even to eastern Europe, Middle East and Africa, a region relatively poor in tech companies and hardest hit by the Iran war. Here, analysts have upped their estimates by 11% on average.
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Read more articles by Srinivasan Sivabalan
