Investment managers – St James”s Place, Aberdeen Investments, Franklin Templeton Institute and Union Bancaire Privée – share their insights on the case for emerging markets in 2026, and outline investment opportunities in other markets such as Europe, fixed income.
A number of investment managers remain positive about the outlook
for emerging markets in 2026, as well as seeing opportunities in
other markets such as Europe. This is despite concerns
about the impact of the Middle East conflict, which has tested
the resilience of Asian and emerging markets, many of which are
oil importers.
For Justin Onuekwusi, chief investment officer at UK wealth
manager St James’s
Place, emerging markets are still an important component of
his asset allocation, supported by attractive relative valuations
and diversification benefits. “We are, however, mindful of
rising concentration risk here, particularly as the technology
sector becomes a larger index component – exceeding that of the
US in some cases. This highlights the importance of looking
beyond headline allocations to underlying index
composition,” he said in the firm’s outlook for the
third quarter of 2026
Onuekwusi’s stance was echoed by Aberdeen
Investments in its third quarter 2026 outlook. “Emerging
markets broadly remain resilient, supported by AI-linked capital
expenditure, though performance varies between regions. China
continues to benefit from AI and green-tech demand, although weak
domestic consumption and property sector challenges are likely to
prompt further targeted policy easing,” the firm said in a note.
Aberdeen said it remains positive on emerging markets bonds and
equities, where growth continues to outperform pre-pandemic
trends and benefits from AI-driven capital expenditure,
particularly across emerging Asia. “While the recent energy shock
may temporarily weigh on non-commodity exporters, structural
tailwinds remain supportive, and many Latin American economies
retain scope for further monetary easing. However, dispersion
across the region is increasing, with performance concentrated in
a narrow set of technology linked exporters,” the firm said.
Michaël Lok, group CIO and co-CEO Asset Management at
Switzerland’s Union
Bancaire Privée (UBP), also said he is initiating a
rotation towards broader, higher-quality exposures: emerging
markets are at the heart of the global semiconductor supply
chain. He sold his exposure to China given persistent
structural headwinds and a lack of near term
catalysts. With oil [price] steady and risks lessening, he
has downgraded the energy sector and sees that there are
more attractive prospects in utilities, which are benefiting from
infrastructure investment tied to artificial intelligence.
In their midyear outlook 2026, Stephen Dover and Larry Hatheway
from the Franklin
Templeton Institute preferred equity investments
including information technology, US small-cap stocks, and
financials, as well as emerging equity markets.
Other markets
Onuekwusi has a positive view on equities and government bonds,
to which he has been adding recently. He believes that
together they provide more efficient exposures than corporate
bonds alone, where he is underweight. He has also recently added
to inflation-linked bonds where he maintains a neutral stance.
“Within equities, our preference for markets outside the US
remains unchanged. US equities continue to represent the most
significant valuation risk, with high index concentration and
stretched multiples implying more muted medium-term return
potential and greater vulnerability to disappointment,” Onuekwusi
continued.
“In contrast, UK, Europe ex UK and Japan offer a more attractive
combination of valuations and improving fundamentals. We have
made some recent additions to UK equity, which remains supported
by its defensive composition and discounted valuations, while
Europe ex UK benefits from a balanced sector mix and global
revenue exposure,” he said. “Japan continues to stand out as a
key opportunity, supported by corporate reform, fiscal support
and strong profitability, with smaller and mid-sized companies
offering additional diversification benefits.”
Lok has also tilted towards Europe, where easing energy
costs and improving fundamentals are quietly strengthening the
case for the region.
Within fixed income, Onuekwusi retains an overall neutral stance,
while becoming more selective across credit segments. “Our fixed
income positioning reflects a more cautious stance on credit
relative to sovereigns. While yields across credit markets still
look attractive on the surface, tighter spreads suggest that
compensation for taking on additional credit risk has become less
compelling, particularly against the backdrop of rising
geopolitical uncertainty,” Onuekwusi said. “As a result, we have
been trimming credit exposure and leaning more towards sovereign
bonds. Higher government bond yields are starting to rebuild
their role as a diversifier in portfolios, offering more
resilience when volatility picks up, even if valuations are not
outright cheap.”
Meanwhile, Dover and Hatheway favour US high-yield credit, select
emerging market debt – especially in Latin America – and
municipal bonds for US taxpayers.
On private credit, Aberdeen maintains a neutral stance,
reflecting building late-cycle concerns. “Investment grade
segments remain resilient and the yield pick-up over public
markets is attractive,” the firm said. But there are emerging
signs of stress in parts of the direct lending market, with
concerns about underwriting standards, fund liquidity, and
the potential for deterioration as the cycle matures.
Aberdeen also retains a strong positive view on infrastructure,
underpinned by powerful structural drivers including
digitalisation, decarbonisation and rising defence spending.
“Significant global infrastructure investment needs are expected
to create a sustained pipeline of opportunities, with private
capital playing an increasingly important role,” the firm said.
“While renewable energy continues to dominate deal volumes,
digital infrastructure is capturing a growing share of total
value, and valuations are generally most attractive in small and
mid-market transactions.”
Dover and Hatheway believe that private markets, secondaries,
private credit, real estate and infrastructure offer attractive
opportunities to potentially boost returns while improving
diversification through lower volatility. “Key risks for
investors to watch in the second half of 2026 include
geopolitical conflict, elevated inflation and the potential for
surprise monetary policy tightening,” they said.