New Delhi [India], July 19 : Emerging markets are expected to remain well placed in the second half of 2026, with attractive valuations, easing inflation and monetary policy support likely to sustain their relative outperformance, while investors may increasingly favour equities linked to artificial intelligence and the broader technology cycle, according to a research report by HSBC.
The report said the global economy faces a complex set of supply shocks, but markets have remained resilient, supported by strong corporate profits. While the outlook remains uncertain and inflation sticky, HSBC maintained a cautious pro-risk stance, favouring access to growth in regions such as Asia and emerging markets.
Emerging market equities delivered a 24 per cent return in US dollar terms in the first half of 2026, more than double the performance of US and developed market equities excluding the US. HSBC said the outperformance was supported by strong fundamentals, with AI capital expenditure supporting profits in South Korea and Taiwan, while firmer commodity prices benefited countries in Latin America.
The report noted that valuations in emerging markets remain attractive, with the MSCI Emerging Markets Index trading at 11.5 times forward price-to-earnings compared with 17.5 times for global equities. India and China were highlighted as markets that could benefit from a stronger second-half performance.
"AI winners" are expected to remain a key investment theme, although the report cautioned that market performance could broaden beyond the technology sector. The research noted that investors may increasingly look for companies and sectors positioned to benefit from the wider economic impact of AI.
HSBC also highlighted a potential shift in the factors driving central bank policy. While concerns over oil prices and geopolitical risks had previously supported a hawkish stance, the focus is increasingly moving towards stronger economic growth and resilient corporate profits. The report said the Federal Reserve could remain on hold through 2026.
Asian equities, particularly those exposed to the AI supply chain, have already delivered strong returns. However, HSBC cautioned that high tech-sector earnings growth and higher capital expenditure could continue to support the region while also raising the risk of volatility.
The report also highlighted the "Jevons paradox" in AI, under which cheaper and more efficient AI usage could increase overall demand for computing resources, potentially supporting further investment in the technology ecosystem.