By Jules Rimmer
How emerging markets appear set to reaccelerate their outperformance of developed markets in the second half of 2026
Emerging-markets stocks have outperformed their developed-market peers by 25% since the start of 2025, but this has only reversed some of the 47% underperformance the asset class experienced in the six years previous. JPMorgan thinks the recovery has further to go.
Things are changing among emerging-markets equities EEM, and the asset class is set to enjoy a further significant rally in the second half of 2026. For JPMorgan, it offers superior exposure to the AI theme at better valuations, and the second-half weakness strategists expect in the dollar DXY is likely to turbocharge returns.
Even though the MSCI Emerging Market Index has risen by a fifth already in 2026, JPMorgan's strategists, led by Mislav Matejka, remain bullish on Korea KR:180721 and Taiwan TW:Y9999. That's important, because after their steepling year-to-date returns, just three stocks, Samsung Electronics (KR:005930), Taiwan Semiconductor Manufacturing Co. (TSM) and SK Hynix (KR:000660), constitute a quarter of the overall benchmark.
While the rally in semiconductor stocks has been almost unprecedented, meaningful supply additions in memory chips are not forecast until the second half of 2027. Given that stock markets typically discount a shift in supply-demand dynamics six to nine months in advance, it's way too early to turn bearish on those three names, Matejka says.
The JPM strategy note published Monday also made a bold call for going overweight China tech shares KWEB. Even though the China artificial-intelligence ecosystem is enjoying &#34;explosive growth&#34; with 600 million generative AI users, up 142% from 2025, according to Matejka and team, an index of internet stocks in China has actually declined 10% this year and derated significantly compared with U.S. peers MAGS.
The DeepSeek AI research laboratory recently released its latest model, V4, optimized for domestic chips, and this has triggered a surge in demand from major tech companies like ByteDance, Tencent (HK:700) and Alibaba (BABA). As a result, JPMorgan now expects Chinese tech stocks to outperform.
Emerging markets offer cheaper exposure to the resurgent AI trade.
The U.S. hyperscalers are predicted to splurge, to the tune of $700 billion, on capital expenditure in 2026, much of it directed to AI infrastructure. A company like Nvidia (NVDA), the note points out, relies on Asian suppliers for 90% of its hardware. As recent estimates of that AI capex for this year and next have been rising, the trend favors the Asian derivatives of that spending.
See: Capital spending on AI hardware is largely benefiting Asian tech firms and limiting direct impact on GDP in the U.S.
Not only is the earnings growth in emerging markets more appealing, JPM emphasizes, but that growth is also more compellingly priced. The price-to-earnings multiple for the asset class is cheap both on an absolute basis, Matejka says, at 12 times forward earnings, but it's &#34;record cheap&#34; versus developed markets, on 20 times, as well. Add to this the facts that investor positioning remains low and inflows are accelerating.
Chinese internet stocks are very cheap compared with their U.S. counterparts.
Another meaningful tailwind for emerging-markets stocks is an expectation that the dollar will depreciate. Since the conflict in Iran started, bond markets have anticipated more hawkish central banks globally, but the JPMorgan report posits that Iran is fading as a driver of interest rates. The bank sees a possibility for bond yields BX:TMUBMUSD02Y to drift lower in the second half, perhaps with a more dovish Fed chairman at the helm.
In recent months of geopolitical turbulence, the dollar has attracted a safe-haven bid, and JPMorgan thinks this will reverse and notes that the U.S. currency is 10% or 15% more expensive than the level suggested by its forex team's real effective exchange rate. Historically, a softer dollar is interpreted as a bullish indicator for emerging markets.
JPMorgan remains bullish on the mining XME, semiconductor SOX and industrial XLI sectors; projects that China's &#34;green shoots&#34; of economic growth will propel emerging markets; and sees any alleviation of tension in the Middle East as an accelerant of that trend.
Read on: Big Tech's AI spending is depriving investors of juicy payouts
-Jules Rimmer
This content was created by MarketWatch, which is operated by Dow Jones &amp; Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
05-11-26 0749ET

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JPMorgan forecasts that emerging markets will continue to outperform developed markets, particularly in the AI sector, with a significant rally expected in the second half of 2026. Emerging-market stocks have already outperformed by 25% since early 2025, and JPMorgan highlights the potential for further gains, especially in Korea and Taiwan. The report emphasizes the attractive valuations of emerging markets compared to developed ones, with a lower price-to-earnings ratio. Additionally, a weaker dollar is anticipated, which historically benefits emerging markets. Overall, JPMorgan remains bullish on sectors like mining, semiconductors, and industrials in emerging markets.

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Taiwan Semiconductor

Krne Csi China Internet

TENCENT

Alibaba

BABA-W

NVIDIA

SPDR S&P Mtls & Mng

Invesco PHLX Semiconductor ETF

Spdr Select Indu

JPMORGAN CHASE & CO. 4.20% DEP SHS REPSTG 1/400TH PFD SER MM

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JPMORGAN CHASE & CO. 4.55% DEP SHS REPSTG 1/400TH PFD SER JJ

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Tencent

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Tencent HK SDR 10to1

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Alibaba HK SDR 5to1

NVIDIA Corporation

AI plays in emerging markets offer more upside than in the U.S. at present, says JPMorgan