With emerging markets equities outperforming their developed market counterparts for the second year in a row, many investors are pondering the question: is this a new dawn for EM equities, at the beginning of a long-term supercycle? We are currently in the third year of witnessing higher earnings growth in emerging markets compared to the MSCI World Index, driven by an industrial supercycle; it is not just the artificial intelligence (AI) capex and broader AI-related infrastructure cycle, but also the energy transition, defence and industrial capex more broadly that are driving this. Asia remains the global manufacturing powerhouse, but emerging markets more broadly stand to benefit too, as areas such as mining, commodities, and power grids are witnessing strong demand. The confluence of these supercycles, which are policy driven and should last several years, gives us confidence that emerging market outperformance will continue.
Taking a longer-term view, the global economic landscape is undergoing a historic transformation. Emerging markets, long positioned as demand-followers orbiting developed economies, are establishing themselves as the primary engine of global growth and innovation. This shift reflects fundamental structural changes rather than temporary cyclical trends, positioning emerging economies for a new era of self-sustaining expansion.
Today, more than 80% of the global population resides in the developing world, a demographic weight increasingly translating into economic influence. Emerging markets already account for over 50% of global GDP and are expected to generate approximately 65% of global economic growth by 2035. The foundation for this transition rests on five critical pillars that are collectively reshaping the emerging markets growth model.
First, domestic demand is replacing export dependency. Rising middle classes, rapid urbanization, and financial inclusion through fintech are creating indigenous demand drivers independent of developed market cycles. Countries like India, with urbanization rates around 35% and expected to reach 50% by 2050, exemplify this transformation. Digital payment adoption has surged across emerging economies, connecting hundreds of millions of consumers to formal financial systems.
Emerging markets – Recommended sector weights
Note: As of May 28, 2026. Source: RBC GAM
“We are currently in the third year of witnessing higher earnings growth in emerging markets compared to the MSCI World Index, driven by an industrial supercycle.”
MSCI Emerging Markets Index Equilibrium
Normalized earnings and valuations
Note: The fair value estimates are for illustrative purposes only. Corrections are always a possibility and valuations will not limit the risk of damage from systemic shocks. It is not possible to invest directly in an unmanaged index. Source: RBC GAM
Second, de-dollarization is reducing currency vulnerability. The dollar’s share of global foreign currency reserves has declined from 70% two decades ago to 58% currently. Foreign holdings of U.S. Treasury securities have plummeted from 38% in 2010 to just 13% in 2025, while central banks increasingly diversify into gold and regional currencies. This financial autonomy insulates emerging markets from U.S. interest rate shocks and capital flow disruptions.
Third, stronger macroeconomic fundamentals provide resilience. Emerging markets maintain healthier fiscal positions than developed counterparts, with general government debt substantially below the 120% of GDP seen in advanced economies. Real policy rates are at decade highs relative to developed markets, attracting capital and supporting investment while boosting export competitiveness.
Fourth, inter-EM integration creates self-reinforcing growth ecosystems. Intra-EM trade has surged from roughly 25% of total emerging market trade in 1990 to approaching 50% today. China has emerged as the largest trading partner for approximately 70% of the world, fundamentally re-orienting global commerce away from developed markets. Brazil now exports more soybeans to China than the U.S., while African economies increasingly trade with India and Turkey.
Fifth, technological independence positions select emerging markets as global leaders. China produces over 60% of global electric vehicles and 75% of battery capacity, positioning itself at the center of the global decarbonization transition. Taiwan dominates semiconductor production, while India remains a significant AI participant through software talent and IT services expertise. India has the world's largest pool of English-speaking software engineers and continues advancing AI implementation for enterprises.
Despite these compelling structural tailwinds, emerging markets equities remain underrepresented in global benchmarks at just 10-12%, trading at historically wide valuation discounts to developed markets. This disconnect suggests either fundamental mispricing or insufficient recognition of structural emerging market advantages.
The investment case extends beyond individual economies to regional opportunities. China 2.0 reflects a decisive pivot from manufacturing toward technology leadership, underpinned by USD 8.8 trillion in excess household savings awaiting reallocation. India, despite recent underperformance, maintains intact fundamentals with supportive domestic liquidity, strong demographic tailwinds, and meaningful participation in the AI economy. Brazil emerges well-positioned for rate normalization and reflation, with commodity exports providing natural hedges against global disappointments.
However, risks remain. Resumed U.S. exceptionalism driven by AI leadership could redirect capital flows toward U.S. tech giants. Energy-dependent emerging markets face vulnerability to commodity price shocks, particularly affecting China, India, Taiwan, and South Korea. China's ability to escape the middle-income trap through consumption-led reforms remains critical for broader emerging markets performance, while geopolitical instability threatens market stability.
Yet the trajectory is clear: after decades of playing supporting roles, emerging economies are learning to fly independently, powered by rising domestic demand, deepening economic integration, and growing financial autonomy. The next era of global growth increasingly belongs to the emerging world.
