Global equity markets have shown notable resilience in 2026, remaining broadly positive year to date despite geopolitical shocks in March. However, the balance of performance has shifted, with emerging markets (EM) significantly outperforming their developed counterparts.
As of 31 May 2026, EM equities have delivered returns of 24.8%, comfortably ahead of developed markets (DM). This divergence reflects a growing reassessment among investors, driven in part by concerns over “US exceptionalism” and the heavy concentration of capital in technology-led sectors within developed economies.
At the same time, income generation has emerged as a key attraction. Over the past two decades, EM companies have delivered nearly 12% compound annual dividend growth, with more than half now offering dividend yields above 3%. This combination of growth and income is strengthening the case for emerging market allocations, particularly among investors seeking diversified return streams.
Investor appetite is already evident. The abrdn SICAV I – Emerging Markets Income Equity Fund surpassed US$1 billion in assets under management within just two years of its launch in March 2024, underlining strong conviction in the asset class.
Matt Williams, Senior Investment Director of Global Emerging Market Equities at Aberdeen Investments and Lead Portfolio Manager of the fund, said:
“Structural tailwinds, including sustained capital investment, resilient fundamentals, and attractive valuations, continue to underpin long-term growth prospects and provide insulation against heightened volatility. We continue to see both fundamental and technical factors supporting the case for EM equities, even as the risk backdrop becomes more complex.”
Beyond this year’s robust earnings, Aberdeen forecasts EM equities to deliver 12–15% earnings per share growth over the coming cycle. This outlook is supported by a multi-year capital expenditure supercycle and rising domestic consumption across key markets.
Macroeconomic conditions also remain supportive. Many EM central banks retain positive real interest rates, alongside prudent fiscal policies and strong foreign exchange reserves. These factors are helping to stabilise currencies as global risk appetite improves.
Valuations further enhance the appeal. EM equities are currently trading at an approximate 40% discount to the MSCI World index, with forward price-to-earnings ratios of around 12x compared with 19x for developed markets.
Williams emphasised the importance of financial discipline in stock selection, adding:
“We believe cash flow is one of the clearest and most reliable indicators of business quality, which is why we describe our approach as ‘follow the cash flow’. It allows us to test management narratives and focus on companies with durable fundamentals.”
He also highlighted the evolving role of income within the asset class:
“Income is a critical and often underappreciated component of total returns in EM. Dividend growth in EM has significantly outpaced that of DM since the early 2000s. This demonstrates that income and growth are complementary, rather than competing, drivers of return.”
A significant shift in global equity market leadership is also underway, driven by the rapid expansion of artificial intelligence (AI). This has elevated Asian markets—particularly Taiwan and South Korea—within the global rankings.
Taiwan has recently overtaken Canada to become the world’s sixth-largest equity market, while South Korea has moved ahead of the UK into eighth place. Both markets are benefiting from their central role in the global semiconductor supply chain, which sits at the heart of the AI investment cycle.
Isaac Thong, Senior Investment Director of Asian Equities at Aberdeen Investments and Lead Manager of Aberdeen Asian Income Fund Limited, noted that while the growth story remains compelling, risks are emerging.
“The rise of Taiwan and South Korea has been driven by their world-class semiconductor ecosystems,” he said. “However, semiconductor profitability is closely tied to global technology demand, and peak earnings periods are often followed by sharp corrections as cycles turn or inventory adjustments occur.”
Thong cautioned that increasing concentration in AI-linked stocks could present challenges, particularly if market dynamics shift.
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Against this backdrop, Aberdeen stresses the importance of a balanced and selective investment approach. While high-growth markets such as Taiwan and South Korea offer strong upside potential, they should be complemented by exposure to more domestically driven economies.
“From an allocation perspective, selectivity is critical,” Thong added. “Investors should balance exposure between high-growth but concentrated markets and more resilient, domestically oriented markets such as China and India.”
He concluded by reinforcing the firm’s focus on quality:
“We continue to favour high-quality companies with strong balance sheets and durable competitive advantages. These businesses are better positioned to navigate volatility, reinvest for growth, and capture long-term opportunities across the region.”
