Emerging Markets in 2026: Why Goldman Sachs Says India, China, and AI Are the Biggest Opportunities Outside the U.S.

The Case for Looking Beyond America

While most investors remain fixated on the S&P 500 and U.S. tech stocks, a quiet revolution is happening in emerging markets. Goldman Sachs Asset Management, Citi, Invesco, and Schwab all identify emerging markets as a key investment theme for 2026, driven by resilient growth, anticipated interest rate easing, a weaker dollar, and robust corporate fundamentals. EMs delivered strong performance in 2025, surpassing expectations despite tariff headwinds, and the momentum is expected to continue.

The global equity market is undergoing a seismic shift. The re-emergence of emerging markets as key players in the digital economy, combined with AI-driven innovation, is creating investment opportunities that rival anything available in developed markets. Here is where the smart money is going.

India: The Cyclical Recovery Play

India has slipped to fourth in the MSCI Emerging Markets Index behind China, Taiwan, and South Korea, but Goldman Sachs sees this as a buying opportunity rather than a warning sign. The thesis is straightforward: India is experiencing a cyclical earnings recovery in FY27, supported by robust domestic investment flows and government policies.

• GDP growth: India remains one of the fastest-growing major economies, with GDP growth projected at 6.5-7% in 2026

• Demographics: With a median age of 28, India has the youngest workforce among major economies. This demographic dividend will drive consumption and productivity growth for decades.

• Digital infrastructure: India Unified Payments Interface (UPI) processes billions of transactions monthly. The digital economy is creating new business models and investment opportunities.

• Manufacturing shift: As companies diversify supply chains away from China, India is emerging as a major beneficiary of the friendshoring trend. Apple, Samsung, and other tech giants are expanding manufacturing in India.

How to invest: iShares MSCI India ETF (INDA) provides broad exposure to Indian equities. For more targeted exposure, consider WisdomTree India Earnings Fund (EPI) which focuses on profitable Indian companies.

China: The Contrarian Opportunity

China currently holds the largest share in the MSCI EM Index at 26.58%, and Goldman Sachs identifies a structurally evolving China as one of the top EM investment themes for 2026. The thesis is nuanced: while China faces well-documented challenges (property market weakness, aging population, geopolitical tensions), it also has unique advantages that most Western investors underappreciate.

• AI and tech self-reliance: China 15th Five-Year Plan emphasizes tech self-reliance and export growth. Chinese AI companies like DeepSeek are producing competitive models at a fraction of U.S. costs. Schwab notes that China has the advantage of plentiful low-cost electricity, a key AI input.

• Valuations: Chinese stocks trade at roughly 10-12x forward earnings, a massive discount to U.S. stocks at 21x+. This valuation gap provides a significant margin of safety.

• Policy stimulus: The Chinese government has been rolling out stimulus measures to support the economy, including rate cuts, property market support, and infrastructure spending.

• Export growth: Despite tariffs, Chinese exports have remained resilient as companies redirect trade through Southeast Asian intermediaries and move up the value chain.

How to invest: KraneShares CSI China Internet ETF (KWEB) provides exposure to Chinese tech giants. iShares MSCI China ETF (MCHI) offers broader market exposure.

Taiwan and South Korea: The AI Hardware Backbone

Taiwan (21.04% of MSCI EM) and South Korea (15.65%) are the unsung heroes of the global AI boom. TSMC in Taiwan fabricates the vast majority of advanced AI chips, while Samsung and SK Hynix in South Korea produce the high-bandwidth memory that AI workloads require.

These countries offer a way to invest in the AI theme at significantly lower valuations than U.S. tech stocks. TSMC trades at roughly 18x forward earnings compared to NVIDIA at 30x+, despite being equally essential to the AI supply chain.

The Macro Tailwinds for Emerging Markets

Several macro factors are aligning in favor of EM equities in 2026:

1. Fed rate cuts: Anticipated Fed easing in the second half of 2026 would weaken the dollar and boost EM currencies, making EM assets more attractive to global investors.

2. Earnings growth: Citi projects 17% EPS growth for global EM equities in 2026, outpacing developed markets.

3. Valuation discount: EM stocks trade at a 40-50% discount to U.S. stocks on a P/E basis. This gap is near historical extremes and is likely to narrow.

4. Capital inflows: Emerging markets are seeing renewed capital inflows as investors seek diversification away from expensive U.S. equities.

Risks to Consider

• Trade war escalation: Further tariff increases could disproportionately impact export-dependent EM economies

• Dollar strength: If the Fed delays rate cuts, a stronger dollar would pressure EM currencies and assets

• China property: A deeper property market downturn in China could spill over to other EM economies

• Geopolitical risk: Taiwan Strait tensions, India-China border disputes, and Middle East instability all pose risks to EM investments

How to Build EM Exposure in Your Portfolio

For most investors, a 10-20% allocation to emerging markets provides meaningful diversification without excessive risk. A simple approach:

• Core EM exposure (60%): Vanguard FTSE Emerging Markets ETF (VWO) or iShares Core MSCI Emerging Markets ETF (IEMG)

• India tilt (20%): iShares MSCI India ETF (INDA) for the demographic and digital growth story

• China tech (20%): KraneShares CSI China Internet ETF (KWEB) for the AI and tech self-reliance theme

Emerging markets in 2026 offer something that U.S. stocks increasingly cannot: growth at a reasonable price. With 17% earnings growth, 40-50% valuation discounts, and structural tailwinds from AI and demographics, the case for EM exposure has rarely been stronger.