Emerging market equities have enjoyed a remarkable bull run over the past 18 months, staging a turnaround after more than a decade of subdued performance. During 2025 and the first half of this year, the MSCI Emerging Markets Index comfortably outpaced the S&P 500 and the MSCI World Index in US dollar terms.
A commodities super-cycle and a weaker dollar, factors that traditionally served as tailwinds for emerging markets, certainly played a role in the 2025 rally, but the sustained surge in 2026 has a high-tech underpinning that challenges traditional thinking about what emerging markets are and what drives them.
Investing in emerging markets is no longer primarily a resources play. Increasingly, an allocation to emerging markets is also a bet on the Artificial Intelligence (AI) ‘gold rush,’ and particularly on the Asian semiconductor companies that provide the picks and shovels for the massive global build-out of cloud infrastructure.
South Korea’s KOSPI is the world’s best-performing major index for 2026, having nearly doubled in value by the end of June, fuelled by historic rallies in AI-linked heavyweights like Samsung Electronics and SK Hynix. Taiwan’s TAIEX (the country’s benchmark index) climbed roughly 60% to historic highs in the first half of the year, powered by a 57% jump in TSMC’s value.
These two indices benefited from soaring prices for computer components such as solid-state drives and high-bandwidth memory from the hyperscale cloud providers and AI companies. The jump in AI infrastructure companies’ valuations means that the KOSPI and TAIEX are even more heavily concentrated around tech plays than the S&P 500.
Samsung Electronics and SK Hynix between them account for roughly half of the KOSPI’s total market capitalisation, while TSMC represents over 40% of the TAIX. These indices have an even more lopsided exposure to a few giants than the S&P 500 has to its Magnificent Seven mega-capitalisation stocks.
AI also drives commodity prices
During 2025, historic rallies in silver, gold and platinum helped to drive equities higher across Africa and Latin America. Although demand for some precious metals has recently cooled, the market for metals needed to manufacture chips, batteries and computing hardware remains resilient and has also supported emerging markets in the first half of 2026.
This shows that the emerging markets story has become more complex and the opportunity set more diverse. Individual countries and regions have different dynamics. It would not be surprising to see the performances of different emerging markets diverge in future, depending on how the commodities and AI themes develop.
The Iran war offers an example of how geopolitical events and macroeconomic factors can affect different countries in uneven ways. Oil-importing markets like Turkey, India and South Africa were more exposed to swings in crude oil than many of their peers with substantial oil and forex reserves or domestic energy supply.
This potential for diverging performance is why we prefer a basket approach to emerging markets rather than a bet on any single region, country or sector. Diverse emerging markets exposure captures tech-driven upside in Asia and commodity tailwinds elsewhere, without concentrating risk in a single market or industry.
While some local investors might be satisfied with the JSE as a proxy for emerging market performance, the global opportunity set is wider and more compelling. South African equities are relatively concentrated in a narrow set of sectors, notably resources, banks and financial services. The JSE’s fortunes are closely tied to commodity cycles.
Balanced emerging markets exposure offers investors access to a range of growth themes, ranging from semiconductor manufacturing in Asia and industrial exports and renewable energy in China, through to commodities super-cycles in selected emerging markets and the expansion of middle-class consumption across parts of Asia and Latin America.
A solid investment case for emerging markets
Looking into the future, the case for investing in emerging markets equities is solid. Although valuation gaps have narrowed following a hot run over the past 18 months, they remain significantly cheaper than their US counterparts.
Also, earnings derived from emerging markets’ companies are improving. Corporate profits maintained positive momentum throughout 2024 and 2025. According to Ninety One, emerging market companies are forecast to deliver 30-35% earnings-per-share growth for the full 2026 year. This is a positive indicator if historical relationships between earnings and stock-index returns hold true.
A further factor to watch is the US dollar. A strong US dollar is traditionally a headwind for emerging market equities. Recent strengthening of the greenback notwithstanding, there are signs that the US dollar has entered a new cycle. Some economists expect the rebound to fade as inflation eases and the prospect of Fed rate cuts returns.
Of course, volatility is part of the deal when investing in emerging markets. Even more than developed world equities, emerging-market indices are vulnerable to local political shocks, geopolitical turmoil, and the macroeconomic climate, but they do add potentially higher returns and provide investors with diversification away from major developed market indices.
