Emerging Markets in Summer 2026: India Leading, China in Tactical Rebound
MSCI EM +14% YTD — a geographic breakdown and Q3 positioning analysis
- The MSCI Emerging Markets index is up +14% YTD, outperforming US equities for the first time since 2020
- India leads with +19% YTD: GDP growth at 6.8%, strong FII inflows and robust domestic consumption
- China is staging a tactical rebound (+12% from the March low) driven by PBoC stimulus and a CNY 2 trillion fiscal plan
- ASEAN (Vietnam, Indonesia, Philippines) benefits from the « China+1 » relocation strategy and trades at 10–13x earnings
- Key risk: a persistently strong dollar (DXY > 104) compresses EM returns in local currencies and dampens capital flows
A Regime Change: Why Emerging Markets Are Taking Back the Lead
Since the start of 2026, emerging markets have staged a meaningful reversal. After five years of chronic underperformance driven by a strong dollar and elevated US rates, the MSCI Emerging Markets index is up +14% YTD as of July 8 — surpassing the S&P 500 (+11%) for the first time since 2020.
This regime change is explained by the convergence of several factors. First, the Fed’s extended pause since December 2025 has stabilised the dollar around DXY 103–105, relieving pressure on USD-denominated EM debt. Second, the rotation away from US technology stocks — trading at 21x forward earnings — has redirected institutional flows towards markets offering P/E ratios of 8 to 13x. Finally, structural reforms implemented across several emerging economies (India, Indonesia, Mexico) have improved the underlying quality of their economic fabric.
Three distinct geographic blocs must nonetheless be distinguished: India, the structural engine; China, in tactical rebound; and ASEAN, the new manufacturing frontier. Each calls for a differentiated allocation and a calibrated level of conviction.
« Emerging markets are not a homogeneous asset class. India looks like America in the 1990s: favourable demographics, a rising middle class, solid institutional reforms. China, by contrast, is a rebound opportunity within a structural bear market. »
Ruchir Sharma — author of The Rise and Fall of Nations, former Head of EM Equities at Morgan Stanley
India: The Structural Engine of the Decade
The Nifty 50 is up +19% YTD, making India the best-performing emerging market in the first half of 2026. Behind this figure lies a deep economic transformation: with 1.44 billion inhabitants, a middle class that will reach 580 million people by 2030, and GDP growth forecast at 6.8% this year, India represents the quintessential structural investment case within the EM universe.
Foreign Institutional Investor (FII) flows have remained positive for eighteen consecutive months, reflecting lasting confidence in the country’s trajectory. The most dynamic sectors include information technology (TCS, Infosys, Wipro), financial services (HDFC Bank, ICICI Bank, Kotak Mahindra) and discretionary consumption driven by Reliance Industries and Titan.
On the macroeconomic front, Indian inflation is normalising at 4.2% — within the RBI’s target — leaving room for an accommodative cycle should growth slow. The current account deficit remains contained at -1.2% of GDP, and the central bank’s foreign exchange reserves have reached a record $680 billion, giving the rupee unusual resilience in times of global volatility.
For exposure, investors have access to several vehicles: the iShares MSCI India ETF (NDIA) listed in London, dedicated active funds (Franklin Templeton India, Mirae Asset India Equity), or private equity fund-of-funds targeting the Indian digital economy. EUR/INR currency risk (at around 90) must be factored into total return calculations.
China: The Tactical Rebound
The CSI 300 has rebounded +12% from its March 2026 low, partially recovering a -15% correction sustained in 2025 amid regulatory tightening, US-China trade tensions and persistent fragility in the property sector. This rebound is real, but it warrants a tactical rather than strategic conviction.
The catalysts are well identified. The People’s Bank of China (PBoC) cut the reserve requirement ratio (RRR) by 50 basis points in April, injecting CNY 1 trillion in liquidity. A CNY 2 trillion fiscal stimulus package targeting green infrastructure, social housing and domestic consumption was announced in May. On valuation, the CSI 300 trades at 8x estimated 2026 earnings, with a dividend yield of 3.5% — levels that offer a comfortable margin of safety.
However, three structural headwinds persist. The property market remains in a confidence crisis: prices in secondary cities continue to fall despite state support. China’s demographics are deteriorating rapidly — the country recorded a second consecutive year of population decline. Finally, the Taiwan geopolitical risk represents an asymmetric volatility factor that quantitative models struggle to properly price.
Our recommendation: a tactical exposure limited to 1–2% of the portfolio via A-share ETFs (iShares MSCI China A ETF, CSOP A50 ETF), with a six-month horizon and an implicit stop-loss at -15% on the index. This position should not be built at the expense of structural conviction on India.
| Market | 2026e P/E | P/B | Dividend | EPS Growth | Conviction |
|---|---|---|---|---|---|
| India (Nifty 50) | 21x | 3.8x | 1.4% | +16% | Strategic |
| Vietnam (VN-Index) | 12x | 2.1x | 2.2% | +14% | Structural |
| Indonesia (IDX) | 13x | 1.9x | 3.1% | +11% | Structural |
| China (CSI 300) | 8x | 1.1x | 3.5% | +9% | Tactical |
| Brazil (Ibovespa) | 9x | 1.5x | 4.2% | +8% | Neutral |
| S&P 500 (reference) | 21x | 4.2x | 1.3% | +10% | Underweight |
ASEAN: The New Manufacturing Frontier
Beyond India and China, the ASEAN region is emerging as a structural beneficiary of the global supply chain reconfiguration. The « China+1 » strategy — whereby multinationals diversify their manufacturing base outside China — directly benefits Vietnam, Indonesia, Thailand and the Philippines.
Vietnam is the most emblematic case. Vietnamese exports grew +22% in the first half of 2026, driven by electronics (Samsung now manufactures 50% of its smartphones there), textiles and automotive components. The VN-Index is up +14% YTD and valuations remain attractive at 12x earnings. The financial infrastructure is improving — Vietnam is working towards MSCI Emerging Market classification, a reclassification that would trigger massive institutional inflows.
Indonesia, meanwhile, is playing the critical natural resources card: the country holds the world’s largest nickel reserves, an essential metal for electric vehicle batteries. The Prabowo government’s policy of locally processing this nickel (ban on raw ore exports) creates a value-chain premium. The IDX equity market trades at 13x earnings with a 3.1% dividend yield, and domestic consumption — supported by 280 million inhabitants — acts as a buffer against external shocks.
European-based vehicles for ASEAN exposure remain limited: the iShares MSCI EM Asia ETF (EMAS), the Lyxor MSCI ASEAN ETF, or active specialist funds such as the Mirae Asset ASEAN Sector Leader Fund. An allocation of around 1% within a balanced portfolio is reasonable at this stage, given the still-limited liquidity of these markets.
Risks and Positioning Recommendations
Three principal risks warrant close monitoring before building or increasing emerging market exposure this summer.
Dollar Too Strong
A DXY persistently above 106 compresses EM returns in euros, strengthens the external debt burden of developing nations and historically triggers capital outflows. Monitor the US/European 10-year spread as a leading indicator.
Taiwan Escalation
An escalation of tensions between Beijing and Taipei would trigger a global flight to safety, penalising all Asian EM assets. Taiwan represents 16% of the MSCI EM — a sharp selloff would drag the composite index lower.
US Tariff Escalation
If the « Big Beautiful Bill » and US trade policy translate into a new wave of tariffs targeting Asia, EM supply chains would be directly impacted. Vietnam and Mexico, in the front line, would face compressed export volumes.
Faced with these risks, our positioning recommendation for a balanced profile in Q3 2026 is as follows: allocate 5–7% of the international equity sleeve to emerging markets (versus a MSCI ACWI benchmark weight of 11–12%). The indicative breakdown would be: 2–3% in India as a strategic holding (NDIA ETF or dedicated active fund), 1% in China A-shares as a tactical position (review scheduled for September), 1% in ASEAN via a regional ETF, and 1–2% in a broad MSCI EM ETF for residual diversification (Brazil, South Korea, Taiwan).
This benchmark-underweight allocation is deliberate: it reflects the risk premium linked to the dollar and geopolitical uncertainties, while capturing the potential of valuation catch-up. Should the DXY fall below 100, or Indian reforms accelerate further, this allocation would merit being raised to 8–10%.
- MSCI EM is outperforming the S&P 500 in 2026 for the first time since 2020 — a regime change worth taking seriously
- India is the structural investment case of the next five years: +6.8% GDP growth, demographics, reforms — overweight at 2–3% of the portfolio
- China offers an attractive tactical rebound (P/E 8x) but structural risks (property, demographics, Taiwan) argue for a limited 1% exposure
- ASEAN benefits from the China+1 strategy: Vietnam and Indonesia are the big winners of global supply chain reconfiguration
- Key risk to monitor: a DXY above 106 would compress all EM returns and trigger capital outflows
This document is provided for informational purposes only and does not constitute investment advice, a personalised recommendation or an offer to buy or sell financial products. Past performance is not indicative of future results. All investments carry risks, including the risk of capital loss. The information contained in this article reflects the analysis of Riviera Wealth Management as of the date of publication and is subject to change. Riviera Wealth Management is an independent financial investment advisory firm (CIF), registered with ORIAS and a member of CNCGP.
