Chetan Sehgal, Portfolio Manager, Templeton Emerging Markets Investment Trust, providers an overview of the emerging market economies and equities.
Pessimism over a US interest-rate reduction in December put a cap to performance. Concerns regarding stretched valuations in artificial intelligence (AI)-related stocks also pressured global indices. For the month, the MSCI Emerging Markets (EM) Index returned -3.21% while the MSCI World Index delivered -0.56%, both in net UK-sterling terms.
Stocks in the emerging Asia region collectively fell. Technology stocks in South Korea and Taiwan took heed from global sentiment and weakened from concerns over elevated equity valuations. Chinese equities were impacted by rising geopolitical tensions, this time between China and Japan.
However, Indian equities ascended, albeit marginally. Market sentiment was largely positive, with cooling local inflation, encouraging progress towards a US-India trade deal and lower oil prices. Corporate earnings were largely positive, which also helped to buoy Indian equities upwards. The nation’s economic growth in the July-September quarter came in at 8.2% from a year ago, the fastest in 18 months, in a show of resilience. This rounded up a month of positive events.
Equities in the emerging Europe, Middle East and Africa (EMEA) region also collectively declined. Weaker oil prices dampened investor sentiment for Middle Eastern equities, with disappointing corporate earnings in Saudi Arabia adding to subdued equity performance. South African equities, however, bucked the regional trend and ended higher over stronger national growth prospects and an improving fiscal outlook.
Equities in the emerging Latin America region rose. Regional performance was largely supported by an upswing in Brazilian equities. Lower-than-expected inflation statistics for October 2025 paved hopes that an easing cycle may be on the cards soon. Annual inflation for Mexico also decelerated in October, and the Mexican central bank reduced its benchmark rate further. The rate now stands at 7.25%, the lowest level since May 2022.
Showing resilience
Amid ambiguity stemming from tariffs and trade wars, EM equities have shown resilience. Part of this strength can be attributed with AI-related optimism. Most countries have continued with monetary easing to balance domestic policies. We expect this to continue into 2026, albeit at a more cautious pace.
EMs are not homogenous; hence, there will be different opportunities in the asset class’s constituents. The AI supply chain in Taiwan and Korea has continued to deliver strong growth. China is increasingly gaining recognition of its ability to innovate. A strategic push for technological self-sufficiency and more targeted policy support could allow us to experience a more sustained rally in Chinese equities. India’s reform agenda—which has included a revamp in its tax structure—is starting to flow to corporate earnings. Earnings for the second-quarter fiscal-year 2026 have improved from moderating inflation, recent tax cuts and lower borrowing costs.
Interest rates have peaked in Brazil and there are now expectations of cuts in 2026, which should be positive for Brazil equities. The prospect of a more fiscally responsible government in the fourth quarter of 2026 may provide another uplift to domestic equities.
We underpin the above opportunities – and risks – with the bottom-up view of the investment landscape in EMs. There are still numerous companies with long-term earnings power in the investment universe.
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