UBS has upgraded its forecast for the MSCI Emerging Markets (EM) index, citing strong earnings momentum, improving financial conditions, and renewed investor appetite for diversification, according to a recent research note.
UBS analysts said they now expect the MSCI Emerging Markets index to reach 1,640 by December 2026, up from earlier projections, underpinned by what they described as the strongest expected earnings growth among global equity regions.
The bank maintained its “Attractive” rating on emerging market equities.
“Earnings growth remains the key driver,” UBS analysts wrote, forecasting 20% earnings-per-share growth for MSCI EM this year, supported by China’s economic recovery, rapid adoption of artificial intelligence, and resilient domestic demand across key markets.
UBS highlighted a constructive macro backdrop, including softer U.S. dollar trends, easing global financial conditions, and supportive monetary policy, which it said should help sustain capital inflows into emerging markets.
Analysts also pointed to improving governance standards, particularly in Asia, which are boosting return on equity and supporting valuations.
China technology stocks were rated “Most Attractive”, with UBS citing government backing for AI development, improving liquidity, and signs of macroeconomic stabilization.
Beyond China, UBS said its preferred markets include India, Brazil, and Indonesia, reflecting what it called compelling domestic growth drivers and favorable earnings trajectories.
Despite a strong 34% gain in 2025 -- the best annual performance since 2017 -- UBS said emerging market equities remain attractively valued relative to developed markets, noting that global investors are still underallocated to the asset class.
“Continued underallocation by global investors leaves room for further inflows,” UBS analysts said, adding that earnings delivery and policy support will be critical to sustaining the rally into 2026.
