Emerging market equities

20 August 2026, 21:59 UTC Chief Investment Office GWM Investment Research

Emerging market equities CIO View: Emerging market equities Laura Smith, Analyst, UBS Switzerland AG Alejo Czerwonko, Chief Investment Officer Emerging Markets, UBS Financial Services Inc. (UBS FS) Xingchen Yu, Emerging Markets Strategist, CIO Americas, UBS Financial Services Inc. (UBS FS)

• We remain constructive on EM equities and maintain our June 2027 Global Asset Class Preference Attractive MSCI EM Index target of 1,920, supported by resilient earnings momentum, easing macro uncertainties, continued AI demand, and MSCI EM improving market breadth. We believe the recent pullback has MSCI EM improved the opportunity set across EM equities. 20 Aug 26 1,668

• EM earnings momentum remains robust and is broadening beyond Dec 26 1,850 AI-related technology stocks, with positive revisions spreading across Jun 27 1,920 regions and sectors. Source: Refinitiv, UBS • We upgrade Taiwan to Attractive, as strong AI-driven demand, rising earnings expectations, and recent consolidation have improved the • Attractive: Mainland China, India, market's risk-reward profile. Malaysia, Taiwan

• We favor maintaining a full strategic allocation to the asset class • Neutral: Brazil, Thailand, Philippines, and diversifying across regions and sectors to capture potential Mexico, South Africa, Indonesia, South recovery and structural growth opportunities. Our preferred markets Korea are mainland China, India, Taiwan (upgraded to Attractive), and Malaysia.

Emerging market (EM) equities have undergone a period of consolidation following the recent pullback in AI-linked equities. In our view, this adjustment has helped reduce positioning excesses, alleviate concentration concerns, and improve the risk-reward profile across several key markets. The broader backdrop remains constructive: macro risks are better understood, positioning is less stretched, and earnings momentum remains resilient. Markets have already priced in a meaningful amount of Fed tightening and, if economic data remain contained, these expectations could moderate, helping stabilize the US dollar and support EM assets. Combined with easing geopolitical and macro uncertainties, as well as supportive earnings revisions, we believe the outlook remains favorable for EM equities. Importantly, we view the recent pullback as an opportunity to selectively add exposure to preferred EM markets, where fundamentals remain strong, but positioning has become considerably cleaner. We maintain our target price of 1,920 by June 2027 and estimate EPS growth of 62% and 18% this year and next year, respectively. Our preferred regions are mainland China, India, Taiwan (upgraded to Attractive), and Malaysia.

The earnings backdrop remains supportive. With approximately 40% of the MSCI EM index having reported, 43% of companies have exceeded earnings expectations, while aggregate earnings growth is tracking 57% year over year and revisions have remained broadly positive. Technology companies linked to AI infrastructure continue to deliver exceptional growth, but earnings momentum is no longer confined to a narrow segment of the market. Improving manufacturing activity, stable global

This report has been prepared by UBS Switzerland AG, UBS Financial Services Inc. (UBS FS). Please see important disclaimers and disclosures that begin on page 4.

demand, and resilient domestic economies are increasingly supporting upgrades across industrials, financials, and other cyclical sectors. More importantly, regional earnings expectations have begun to broaden. Excluding Taiwan and Korea, where AI-related earnings growth is most pronounced, consensus expects EM earnings to grow by 17% and 12% in 2026 and 2027, respectively. In our view, this is an important development, suggesting that earnings growth is becoming more diversified across regions and industries rather than relying primarily on AI hardware beneficiaries. Key downside risks remain a period of sustained dollar strength, a disruption to the AI investment cycle, or a sharp slowdown in corporate capex.

Regionally, we maintain an Attractive stance on mainland Chinese equities. Earnings momentum is…