LIVE MARKETS-Emerging markets to outrun Wall Street in 2026, HSBC says

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EMERGING MARKETS TO OUTRUN WALL STREET IN 2026, HSBC SAYS

2026 will likely be a banner year for emerging markets stocks, according to HSBC analysts, with the narrative shifting towards structural growth and leadership from the value status it has been.

MSCI's index tracking equities across developing markets .MSCIEF had advanced over 30% in 2025, nearly double what Wall Street's S&P 500 .SPX managed to gain. And less than two weeks into the new year, the MSCI index has continued to outpace the U.S. benchmark index.

Earnings from developing markets this year should outpace the S&P 500, according to HSBC, as investors look to diversify their exposure. The dollar weakening against the backdrop of more U.S. interest rate cuts and challenges to Federal Reserve independence is a key catalyst, according to the brokerage.

HSBC says consensus sees EM earnings growing 17.1% in 2026, compared with LSEG compiled estimates for S&P 500 companies which are forecast to increase 15.5%.

"Global investors remain structurally underexposed to EM, though there are signs of capital reallocation, especially into EM AI-related stocks," said Alastair Pinder, head EM and global equity strategist at HSBC.

"Across sectors, we remain overweight consumer staples, technology, consumer discretionary, and financials."

Much of the gains in 2026 are likely to be led by mainland China on improving innovation AI capabilities and stimulus through its 15th five-year plan, the brokerage said, along with abundant liquidity and an earnings upgrade cycle.

Echoing this bullish appeal, China stocks climbed to a fresh decade-high earlier this week and onshore markets logged a record turnover.

The brokerage also said Indonesia, Turkey, and Saudi Arabia are among the top undervalued contrarian plays.

Mexico stands out with meaningful valuation upside, with HSBC saying that the former offers asymmetric upside from a potential USMCA renegotiation later this year, while rising gold prices will likely underpin interest in South African miners.

Equity benchmarks in Mexico .MXX and South Africa .JTOPI marked all-time highs earlier this week.

(Johann M Cherian)

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