EM equities surge 24% in H1 2026, HSBC sees further gains on 11.5x P/E valuation
HSBC’s latest research highlights a 24% H1 2026 return for emerging-market equities—more than doubling developed-market peers—and sees sustained momentum backed by a 34% valuation discount and broadening AI-led growth. With the MSCI EM Index at 11.5x forward P/E versus 17.5x for global equities, the report advocates a pro-risk stance favoring Asia and commodities-linked markets.
Key Takeaways
- HSBC’s latest research highlights a 24% H1 2026 return for emerging-market equities—more than doubling developed-market peers—and sees sustained momentum backed by a 34% valuation discount and broadening AI-led growth.
- With the MSCI EM Index at 11.5x forward P/E versus 17.5x for global equities, the report advocates a pro-risk stance favoring Asia and commodities-linked markets.
Mentioned
Key Intelligence
Key Facts
- 1Emerging-market equities delivered a 24% return in US dollar terms in H1 2026, more than double the performance of US and developed-market equities excluding the US.
- 2The MSCI Emerging Markets Index trades at 11.5 times forward P/E, a 34% discount to global equities' 17.5 times multiple, per HSBC's report.
- 3AI capital expenditure is driving corporate profits in South Korea and Taiwan, while commodity price strength supports Latin American markets.
- 4India and China are highlighted as major markets poised for stronger H2 2026 performance.
- 5HSBC maintains a cautious pro-risk stance, favoring Asia and emerging markets despite sticky inflation and supply-shock uncertainties.
- 6Central bank policy focus is shifting from hawkish oil-and-geopolitical concerns toward supporting economic growth and resilient corporate profits.
MSCI Emerging Markets Index forward price-to-earnings discount to global equities
| Metric | ||
|---|---|---|
| H1 2026 Return (USD) | 24% | ~10-12%* (US & DM ex-US) |
| Forward P/E | 11.5x | 17.5x |
| Monetary Policy Stance | Easing bias | Hawkish-to-neutral pivot |
Analysis
For investors navigating sticky inflation and supply shocks, emerging markets delivered a standout 24% return in the first half of 2026—eclipsing developed-market gains and extending a performance gap that HSBC argues has further room to run. A 34% valuation discount, measured by a 11.5x forward P/E on the MSCI EM Index against 17.5x globally, sits at the heart of this conviction. Coupled with AI-driven earnings in tech-heavy South Korea and Taiwan, and commodity tailwinds in Latin America, the macro setup appears uniquely supportive for an asset class often sidelined by risk-averse allocators.
HSBC's latest research report, released on July 19, 2026, delivers a compelling case for emerging-market equities to continue their strong performance through the second half of the year. The call is anchored in a combination of attractive valuations, easing inflationary pressures, and a broadening AI-and-technology investment cycle. In a global environment still grappling with supply shocks and sticky inflation, emerging markets have not only proven resilient but have decisively outperformed their developed-market counterparts—returning 24% in US dollar terms during the first half, more than double the return of US and ex-US developed equities. This outperformance is not speculative froth; HSBC attributes it to robust fundamentals: AI-related capital expenditure is driving corporate profits in Asian technology hubs such as South Korea and Taiwan, while firmer commodity prices are benefiting resource-rich Latin American economies.
South Korea and Taiwan are now integral nodes in the global AI supply chain, while India is emerging as a manufacturing and services hub, and China’s policy stimulus is aimed at stabilizing its property and consumer sectors.
The valuation gap remains the most striking feature of the landscape. The MSCI Emerging Markets Index is trading at just 11.5 times forward price-to-earnings, a deep 34% discount to the 17.5 times multiple of global equities. This discount, combined with improving macro conditions, suggests the re-rating potential is significant. HSBC identifies India and China as two heavyweight markets that could see a stronger second-half performance, implying that the rally may extend beyond the tech-centric names that have led so far. The report cautions that while 'AI winners' will remain a key theme, the investable universe is set to broaden. Investors are increasingly scanning for companies and sectors beyond the technology complex that are positioned to capture the productivity gains and economic spillovers of artificial intelligence.
A crucial, if less heralded, shift underlined in the report is the evolving posture of central banks. Previously, concerns over elevated oil prices and geopolitical instability kept monetary policy in a hawkish frame. Now, the policy debate is pivoting toward the strength of economic growth and the resilience of corporate profits. This transition, if sustained, could ease financial conditions and provide an additional tailwind for emerging-market assets, which are typically more sensitive to global liquidity and risk appetite. The report does not dismiss the risks—inflation remains sticky and the global outlook uncertain—but it maintains a cautious pro-risk stance, favouring regions where growth is both accessible and structurally supported, particularly in Asia.
What to Watch
The HSBC report’s timing matters. As central banks in emerging economies were earlier to tighten and are now earlier to pivot toward accommodation, their equity markets could benefit from a favorable interest-rate differential. Moreover, the tailwinds from deglobalization and supply-chain reconfiguration have disproportionately favoured select emerging markets, creating a structural demand story that goes beyond cyclical recovery. South Korea and Taiwan are now integral nodes in the global AI supply chain, while India is emerging as a manufacturing and services hub, and China’s policy stimulus is aimed at stabilizing its property and consumer sectors.
Looking ahead, the report implies that the second half of 2026 could see a more diversified leadership within emerging markets. While the AI theme will likely maintain its momentum, the search for value and catch-up potential could rotate capital into undervalued segments in China and India, as well as into commodity and financial stocks. For global investors, the message is clear: the combination of low relative valuations, improving earnings momentum, and a pro-growth policy pivot makes a strong case for overweighting emerging markets. Yet, the inherent volatility of these markets demands a selective approach. HSBC’s emphasis on AI-led growth and a broadening opportunity set suggests that active management and sector rotation will be key to capturing the full potential of this emerging-market renaissance.
Cite This Page
"EM equities surge 24% in H1 2026, HSBC sees further gains on 11.5x P/E valuation." Finance Intelligence Brief, July 20, 2026. https://getfinancebrief.com/story/finance-emerging-markets-hsbc-h2-2026
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