Investor geography: which countries to look to for promising ideas in 2026

In 2025, emerging market stocks confidently outperformed US stocks, which was one of the main surprises of the outgoing year. By December 29, the gap in growth dynamics between the MSCI Emerging Markets (judging by the largest ETF following it) and the S&P 500 exceeded 12 percentage points. This is like a "stretched rubber band," says Arjun Jayaraman of Causeway Capital Management: US stocks have significantly outperformed emerging markets for a long time. And now a correction has occurred.

Another unexpected development in the outgoing year was the growth of the European market, which had also lagged behind the American market for a long time. Europe began to increase defense spending, Germany relaxed its strict borrowing rules, and US President Donald Trump's trade policy undermined investor confidence in American assets. This created a moment that the markets called MEGA — "Make Europe Great Again."

Which markets do investment banks recommend keeping an eye on in 2026?

JPMorgan expects emerging market stocks to show strong growth next year due to low central bank rates, higher earnings growth, and attractive low valuations. The bank forecasts that the MSCI Emerging Markets Index will rise to 1,575 points next year, which is 12.4% higher than the closing level on December 29.

The bank's analytical team advises paying attention to the Chinese market.

After several years of slowdown, there may be signs of recovery in its economy, primarily in the private sector. If stock market growth is sustainable, it will be an important driver not only for Chinese companies' shares, but also for international companies whose business is tied to Chinese demand, according to the bank's materials. The bank highlights three dozen companies that could benefit from the revival of growth in China. These include luxury brands LVMH, Kering, and Hermes, car manufacturers Mercedes-Benz and Volkswagen, as well as Rio Tinto, Schneider Electric, Siemens, Adidas, and others.

UBS also names China among its investment ideas for next year: it expects earnings per share for companies in the MSCI China Index to grow by around 10% in 2026. In this country, the Swiss bank advises paying attention to state-owned and quasi-state-owned companies, whose dividend yields are already comparable to those of international high-yield bonds, as well as consumer, internet, and AI companies. The bank does not name specific issuers.

UBS separately notes that emerging markets look attractive as a tactical idea, especially at the beginning of 2026. The main driver for them is the expectation of a weaker dollar and lower US bond yields, which traditionally supports capital inflows into the region. In addition, many countries have room to lower interest rates, unlike the US and Europe. However, the bank's analysts warn that after the first quarter, the growth momentum of emerging markets may weaken if the dollar starts to strengthen again.

They now expect earnings for companies in emerging markets to grow by around 15% in 2026, with the MSCI Emerging Markets Index rising to 1,510 points by the end of next year. This implies growth of around 8% from the closing level on December 29.

Morgan Stanley, on the other hand, does not expect growth in the emerging markets index and also suggests not betting on China for the time being: according to the bank, a full recovery of the country's economy will begin in 2027. For now, neither the People's Bank of China's interest rate cuts nor the expansion of government support measures for technology, AI, and industrial localization will be able to ensure strong economic growth in 2026.

Both JPMorgan and Morgan Stanley highlight Brazil and India.

Regarding Brazil, the first report states that next year (possibly in the first quarter), the country's central bank will begin a cycle of monetary policy easing. This will support stocks on the local market. At its last meeting in December, the Brazilian regulator left the rate unchanged. However, there are also reasons for uncertainty — elections will be held in Brazil next year.

"In Brazil, next year's presidential election is likely to have a significant impact on market dynamics, but we still see the appeal of a combination of high return on equity and low market valuations," Morgan Stanley said in its report.

In the case of India, JPMorgan predicts that in 2025 it will show the highest GDP growth among the countries monitored by the bank: lower inflation, cheap credit, and household support measures will have an impact. A possible trade agreement with the US, as well as tax reform (which includes reducing the number of tax rates on goods and services, as well as lowering taxes on essential goods) could support growth in consumption and corporate profits.

Morgan Stanley also forecasts India's economic recovery in 2026.

JPMorgan writes about South Korea, noting that potential is being created by corporate governance reforms, clarity on US tariffs, and growth in earnings per share among chip manufacturers, financial companies, and some industrial companies. The bank notes that there are concerns in the market about the Korean market being overheated, but stocks there are still undervalued.

The Philippines is also at the top of JPMorgan's list. The country's central bank has the greatest potential among emerging markets to lower interest rates thanks to slowing inflation, according to the bank's analysts. During periods of monetary policy easing, local company shares usually rise. However, the key risk here is low liquidity.

Morgan Stanley expects European companies' earnings per share growth to be significantly below consensus next year, at around 3-4% versus double-digit market expectations.

In its forecast for 2026, UBS downgraded European stocks from "above market" to neutral. According to the bank, the main reason is the region's structural lag in the technology sector and AI. Historically, in 70% of cases when the global tech sector outperforms the market, Europe lags behind. Currently, only about 9% of European stock returns in 2025 are related to AI.

In addition, the bank forecasts that the euro will strengthen to $1.21 in the first quarter of 2026 (on December 29, the exchange rate was $1.18). According to UBS analysts' calculations, a 10% strengthening of the European currency reduces the earnings per share of local companies by about 5%. Political risks will also intensify in 2026, as investors begin to factor in the uncertainty surrounding the 2027 elections in France, Spain, and Italy, which could put pressure on multiples even with stable macro statistics.

Europe remains attractive in terms of valuations—the price-to-earnings (P/E) ratio is approximately 22% lower than that of the S&P 500, and dividend and buyback yields reach 4.7%, which is almost twice the US level. But this is a catching-up region, not a leading one, in the global stock market, writes UBS.

JPMorgan notes that investor skepticism about Europe could play into the market's hands: low expectations increase growth potential. The key idea of the bank's analysts is that in 2026, economic activity in the eurozone should accelerate thanks to fiscal stimulus measures, improved lending, and softer financial conditions. The bank separately emphasizes Germany's role: the effects of increased spending on infrastructure and defense in the country are expected to begin to manifest themselves, and may turn out to be greater than investors anticipate. Within the region, JPMorgan expects capital to flow from peripheral markets such as Italy and Spain to key markets, primarily France.

This article was AI-translated and verified by a human editor