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Asian equities offer hidden value in dynamic companies across fast-growing economies.
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Charting a Distinct Course to Asia’s Awakening Equity Markets
The rise of artificial intelligence could redefine leaders and laggards in emerging markets.
Emerging-Market Debt: The Next Frontier for AI Disruption?
REGULATION
Earnings growth could continue energizing an emerging-market stock recovery.
Emerging Market Engines Shift into High Gear for Equity Investors
After a strong year for China stocks, could improving fundamentals and accelerating earnings growth deliver more for investors?
China Equities: Tracking the Turn from Rally to Resilience
Going the Distance
Equities
China
Latest Insights
Emerging Markets:
Explore the investment themes driving the next phase of emerging market equities
Emerging markets are back in the spotlight, but how does today's rally differ from previous market cycles?
What Will Shape the Next Phase of Emerging-Market Equities?
EMERGING MARKETS
Attractive Valuations Reflect Underallocation
With earnings taking over as the key driver of returns — and themes such as AI, governance reform and supply-chain realignment gathering pace — emerging market equities may still have further to run.
After underperforming for much of the last decade, emerging-market (EM) equities rebounded nicely since 2025. Is it too late to invest? We don’t think so. With valuations still attractive and earnings growth forecasts looking up, this could be the right time to give the developing world a closer look. Earnings growth has been the key catalyst to returns, unlike last year, when valuation expansion drove nearly half the 34% surge in EM equities. Recent gains have been fueled largely by earnings upgrades—a trend we expect to continue. EM earnings are poised to outpace both the US and other developed markets (DM) in 2026, according to consensus estimates (Fig.1). In our view, this suggests a more sustainable foundation for future performance than multiple expansion.
Despite their recent gains, EM equities still trade at a sizable discount to their (DM) peers. For example, valuations in Brazil were 19% lower than the MSCI EM at the end of July. The country appears to be at an important inflection point in its monetary policy cycle, with rates expected to come down from lofty levels. In Brazil and the rest of the developing world, underallocation by global funds is keeping a lid on valuations, (Fig.2). This suggests that renewed interest in EM hasn’t translated into substantial participation.
AI is a great example of a supportive theme that investors may not associate with EM equities. Investing in AI can sometimes feel like chasing the most crowded—and expensive—parts of the US market. But, in our view, some of the more durable earnings streams could come from supplying the infrastructure that enables AI. That’s where we foresee EM gaining a unique foothold. EM companies provide many of the critical building blocks for AI infrastructure, including everything from semiconductor foundries and high-bandwidth memory to data center power and thermal management systems. These “backdoor AI” firms tend to be less speculative and more grounded in long investment cycles. Many of these firms also boast high barriers to entry.
Emerging Markets Offer a Back Door to AI
But even the strongest companies need stable backdrops in which to operate. Fortunately, corporate governance across the developing world is undergoing a quiet revolution with profound implications for investors. A case in point is South Korea’s “value-up” initiative, which just marked its second anniversary. While Japan’s corporate governance transformation unfolded over a decade, South Korea is still at the beginning of its journey, leaving significant room for improvement and a narrowing of the long-standing “Korean discount.” South Korean financials are at the forefront of corporate governance reforms, while the country’s conglomerates, including world-leading franchises in memory, autos and defense, are just starting their value-up journey. Efforts to improve shareholder value are afoot in other regions as well. China has encouraged state-owned enterprises to prioritize valuations and shareholder returns, signaling a shift toward more market-friendly practices. As part of this initiative, record-high buybacks and dividends have driven shareholder returns.
Governance Reform: Turning Earnings into Shareholder Value
Emerging markets are no stranger to geopolitical risk. Trade tensions, policy uncertainty and currency volatility can all weigh on investor confidence. But polarization is reshaping global supply chains in ways that create new opportunities for EM companies. Many countries are rerouting trade, diversifying production and building new linkages—reflecting a world in which growth drivers are becoming less synchronized. Energy is a good example. The surge in global demand for liquified natural gas (LNG) is creating more demand for LNG carriers, one of the most technically demanding categories in shipbuilding. Historically, Chinese and Korean shipyards have dominated this space, but shifting trade relationships are changing market-share patterns. As US–China tensions have intensified, many western companies have become more cautious about placing orders with Chinese yards involved in sensitive energy routes. Korean shipbuilders, with a long track record of strong safety credentials and established relationships, have been clear beneficiaries of this shift—an example of how trade tensions can create new opportunities. Because the developing world is so immense, we believe it’s best navigated through skilled active management. Active, bottom-up investors can tap into a wide range of attractive investment opportunities at compelling valuations. EM have seen fits and starts before, but we see a clear difference between past short-cycle rebounds and what’s transpiring now—an increasingly earnings-based recovery that could have plenty of room to run.
Global Polarization Is Creating New Opportunities
For investment professional use only. Not for inspection by, distribution or quotation to, the general public. The value of an investment can go down as well as up and investors may not get back the full amount they invested. Capital is at risk. Past performance does not guarantee future results. The views expressed herein do not constitute research, investment advice or trade recommendations, do not necessarily represent the views of all AB portfolio-management teams and are subject to change over time. References to specific securities are presented to illustrate the application of our investment philosophy only and are not to be considered recommendations by AB. The specific securities identified and described do not represent all of the securities purchased, sold or recommended for the portfolio, and it should not be assumed that investments in the securities identified were or will be profitable. MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI. The information contained here reflects the views of AllianceBernstein L.P. or its affiliates and sources it believes are reliable as of the date of this publication. AllianceBernstein L.P. makes no representations or warranties concerning the accuracy of any data. There is no guarantee that any projection, forecast or opinion in this material will be realized. The [A/B] logo and AllianceBernstein® are registered trademarks used by permission of the owner, AllianceBernstein L.P. © 2026 AllianceBernstein L.P.
Sammy Suzuki, CFA Head of Emerging Markets Equities
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Emerging Markets: Going the Distance
Fig 1. Strong Earnings Could Support Emerging Market Returns
2026 Consensus EPS Growth (Percent)
Historical and current analyses do not guarantee future results. Earnings growth is calculated based on the year-on-year change of market capitalization/market price/earnings ratio. EM Asia represented by MSCI EM Asia; EM represented by MSCI Emerging Markets; US represented by S&P 500; Developed markets represented by MSCI World; Europe represented by MSCI Europe; Japan represented by MSCI Japan. As of 27 March 2026. Source: Bloomberg, FactSet, MSCI and AllianceBernstein (AB)
US
Europe
Japan
Developed Markets
EM
Asia Ex Japan
16
15
11
20-Year Average: 8.3%
33
40
Fig 2. EM Equities Have Traditionally Been Underowned
EM Equities as a Share of Global Assets Under Management (Percent)
Historical and current analyses do not guarantee future results. As of February 2026. Source: Emerging Portfolio Fund Research Global, JPMorgan Chase, MSCI and AB
We understand the hesitation. EM are not without risk and haven’t always lived up to their promise. Nonetheless, improving corporate fundamentals and corporate earnings growth could be signs that this isn’t just another short cycle rebound—especially given the structural trends creating new opportunities.
Regardless of size, many AI suppliers with operations in EM trade at a discount to their US peers. In contrast to the hyperscalers, which have gone on a spending spree, EM tech companies are less capital intensive than their DM counterparts (Fig.3). For investors, AI enablers have important implications for market volatility. Recently, concerns about software disruptions, monetization of escalating capex intensity and a possible AI bubble have buffeted flagship US AI megacaps. At the same time, hardware and component suppliers in the developing world were largely spared.
Fig 3. EM Tech Companies Offers Potential Upside with Lower Capital Intensity
Capex as a Percentage of Sales (Percent)
Historical analysis does not guarantee future results. References to specific securities discussed are not to be considered recommendations by AllianceBernstein L.P. Estimates as of June 30, 2026. Source: Alibaba, Amazon Web Services (AWS), Bloomberg, Google, Meta Platforms, Microsoft, Morningstar, Oracle, Samsung, SK Hynix, S&P, Tencent, TSMC and AB
Earnings growth could continue energizing an emerging-market stock recovery
10-Year Average: 6.5%
5.9
2022
2023
2024
2025
2026E
2027E
100 80 60 40 20 0
EM Tech Companies are less Capital Intensive
Hyperscaler Spending has Ballooned in Recent Years
TSMC
SK Hynix
Samsung
Tencent
Alibaba
AWS
Google
Meta Platforms
Microsoft
Oracle
Earnings Will Be the Key Driver
Tracking the Turn from Rally to Resilience
Could improving fundamentals and earnings growth in China deliver more for investors? Supportive policy reforms and attractive valuations are creating new opportunities, but investors will need to be selective as the recovery unfolds.
In a year that surprised sceptics, China equities delivered strong performance in 2025, buoyed by improving corporate fundamentals, strengthening earnings and policy reforms. China entered 2026 on solid ground for further gains, though it will take a selective approach to tap into the next stage of recovery. Offshore China equities and “A shares”— shares of mainland Chinese firms that trade on two major exchanges—delivered two consecutive years of double-digit gains in 2024 and 2025, following an extended period of underperformance. However, in 2026 through June, the recovery has been far from uniform. China A-shares advanced strongly, posting a 15.6% gain, while Offshore China declined by 14.9%, underscoring the increasingly distinct opportunity sets available across China equity markets. We believe the conversation around China in 2026 is not whether the world’s second-largest economy is investible, but rather how best to allocate to China.
Over the long term, equity market returns are driven by earnings. That helps explain why Chinese stocks struggled for much of the past decade as earnings-per-share (EPS) growth stagnated. Some of this weakness was cyclical, but there were also structural elements at play. China has been going through a familiar East Asian growth pattern—export-led expansion, rising wealth, a property boom and then a correction. Korea and Japan lived through similar chapters. These transitions are painful, but they are not unique or permanent. China equities have also been hindered by poor price discipline, deflation and overcapacity—not to mention high issuance levels that diluted EPS growth. Fortunately for investors, dividends and buybacks have become more common, and net issuance has turned negative. It’s early, but directionally, this matters. And in a policy pivot, China has put the brakes on “involution”—the draconian price cuts previously employed to stimulate consumer spending and economic growth. Anti-involution is part of China’s 15th Five-Year Plan and an underappreciated market driver, in our view.
Meanwhile, the level of untapped savings is supportive, too, in China’s retail-heavy stock market. Chinese households have accumulated significant savings since 2021, due primarily to reduced property purchases. With bank deposit rates low and bond yields compressed, equities stand out as perhaps the most viable risk asset. Chinese consumers have taken note, driving the MSCI China A Onshore Index up 26.1% in 2025. To be sure, the rally is still early and its progression won’t likely be linear. The latest macro data point to an economic recovery in China that will be uneven at best. Still, we see early signs of stabilization in recovering exports, industrial upgrades and travel-related areas such as hotels and Macau gaming.
Household Savings a Potential Tailwind
Light allocations in China are reflected in valuations, with A shares particularly cheap even after last year’s rally. At the end of June 2026, the CSI 300 Index of onshore Chinese stocks was trading at 14.7 times forward price to earnings. While that’s above its historical average, it’s below prior peaks and represents a sizeable discount to the S&P 500 and MSCI EAFE. This leaves plenty of room for multiple expansion as earnings visibility improves.
Foreign Positioning is Light and Valuations are Attractive
Markets have largely adjusted to China’s new baseline and are reacting to headlines with relative calm. Still, volatility remains part of investing in China given the ongoing policy shifts and global trade dynamics. Moreover, China remains a relatively inefficient market. But this inefficiency, coupled with rapid structural change, is creating opportunities in companies across diverse industries. Even when macroeconomic narratives dominate market sentiment, active managers can find fertile ground to generate alpha by tapping into mispriced companies with solid earnings potential at attractive valuations. After more than a decade of stagnation, China’s equity market appears to be on the upswing. China is a deep, liquid and highly investable alternative for investors looking to expand upon existing global allocations. But market sentiment is likely to be uneven for the foreseeable future, making bottom-up stock selection critical to achieving success in this evolving market.
Inefficiencies Create Risk—and Opportunities
John Lin Chief Investment Officer, Emerging Markets Value Equities and China Equities
Fig 1. China Earnings Are Catching up with the Developed World
Consensus Annual Earnings Growth Estimates (Percent)
Historical and current analyses do not guarantee future results. Earnings estimates are in local-currency terms. China A represented by CSI 300 Index; China Offshore represented by MSCI China. As of March 31, 2026. Source: Goldman Sachs and AllianceBernstein (AB)
China A
China Offshore
World
15.9
12.7
Fig 2. Positioning in China Equities Remains Light Despite Rebound
China Allocations in Active Funds Globally*
Historical analyses do not guarantee future results. *Includes Global Emerging Markets, Asia ex Japan, Global & Global ex US funds of total Assets under Management of ~USD1.4 trillion. **5th percentile over 10Y; UW -215bps. As of May 31, 2026. Source: EPFR, GS Research and AB
In aggregate, these shifts have had a positive effect on margins. We think return on equity may have reached an inflection point, with consensus EPS growth estimates for the broad-market CSI 300 Index outpacing the S&P 500 and MSCI Europe (Fig.1). These upbeat expectations are anchored in genuine earnings recovery rather than market sentiment—a marked change from previous years.
Despite the rebound in China equities, many global investors have scant allocations to China. Europe and Japan have absorbed some of the earlier investor reallocation. However, China remains under-allocated (Fig.2). If more global investors begin shifting more assets toward China, it could be a long-term catalyst for the stock market.
14.9
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14.8
12.3
16.4
5.8%**
15%
Asia’s Appealing Macro Backdrop
Charting a Distinct Course to Asia’s Awakening Equity Market
Global investors are rediscovering Asia ex Japan (AxJ) equities. Yet the region's constituents move to different rhythms, with distinct economies and governance. How can investors build effective exposure amid rapid change?
Asian stocks have enjoyed an impressive run, despite volatility in early 2026. The MSCI Asia ex Japan Index surged by 45.8% in US-dollar terms over 12 months through June 30, 2026 outpacing global developed and US stocks by a wide margin. The recovery, which follows a decade of underperformance, has been driven by a resurgence of corporate earnings growth that is not yet fully reflected in valuations, in our view. Year-to-date gains have been concentrated in a relatively narrow group of AI beneficiaries across the technology value chain. We believe this has created attractive opportunities elsewhere in the market, where many fundamentally strong companies have yet to see their earnings recovery fully reflected in share prices.
Economic growth provides a strong foundation for Asian equities. In 2025, AxJ economies had contributed 27% to global GDP growth, up nine percentage points from 2010 (Fig.1). Even though China’s growth has slowed substantially from the breakneck pace of the early 2000s, AxJ economies combined are projected to expand by a healthy 5.1% in 2026—more than double the pace of the world economy and other emerging markets.
Yet beneath the surface lies a complex mosaic of markets and economies. AxJ spans a region shaped by distinct ethnic groups, cultures and cuisines, a diversity that is mirrored in its equity markets. South Korea and Taiwan are tech-heavy, outward-facing economies, while India is fueled by domestic growth and infrastructure development. China offers a mix of export-driven industries and a massive domestic market, and has enjoyed improving profitability despite macro challenges. Singapore and Hong Kong are closest to developed economies. Each market is influenced by a distinct set of shifting economic cycles and industry developments. Across the region, equity markets tend to be inefficient, with investor behavior playing an outsized role in creating opportunity. Short investment horizons, policy driven narrative shifts and heavy retail participation often result in sharp price moves that are disconnected from long term fundamentals, creating attractive entry points for disciplined active investors. As a result, we think passive index approaches aren’t best suited to deliver alpha by capturing stronger pockets of return potential in AxJ markets. Today, the AxJ market offers strong earnings-growth potential of 52.3% for 2026, according to consensus estimates (Fig.2). Valuations are attractive, with the AxJ market trading at a 32% discount to the MSCI World index of global developed stocks—double the 20-year average.
Regional Equity Markets Are Not a Monolith
These diverse trends share a common thread. In our experience, we’ve found that AxJ companies tend to deliver fundamental improvements well before the market catches on. In other words, active investors in AxJ stocks can use their research to identify opportunities and establish positions well ahead of the market. That’s why we believe value equity strategies can be particularly effective in AxJ equities, by targeting companies with undervalued long-term earnings potential. We believe combining quantitative and fundamental research provides complementary perspectives that aim to discover opportunities created by investor behavior, which often prompts volatility—and mispriced shares—in AxJ markets. To be sure, plenty of risks warrant attention. The Middle East conflict is having complex effects on emerging markets, as the energy shock fuels inflation and volatility. Deglobalization is shaking up supply chains, while China’s economic growth remains subdued. We think these risks bolster the case for taking a highly selective approach to AxJ equities. Allocating to Asia is more than just buying benchmark exposure. Diverse markets shaped by complex global and local forces often reward local research, based on deep industry knowledge and country-specific nuance. Capturing Asia’s awakening equity potential in a risk-aware portfolio may depend less on regional beta—and more on the ability to uncover value where the market hasn’t looked yet.
Finding Opportunities: from AI to Governance
Fundamental Focus can get Ahead of the Market
Lily Zheng Portfolio Manager, Emerging Markets Value Equities and Asia ex Japan Value Equities
Fig.1 Asia Is Powering Global Economic Growth
Contribution to Global GDP Growth (Percent)
Past performance does not guarantee future results. *Based on forecasts from AB economists. Left chart as of December 31, 2025. Right chart as of June 30, 2026. Source: IMF, Bloomberg and AllianceBernstein (AB)
Global
EEMEA
Emerging Markets
0.7
1.8
2.0
2.2
2.6
3.8
Fig 2. Asian Equities Offer Strong Growth Potential at Attractive Valuations
Historical analyses do not guarantee future results. *EPS: Earnings per share. Consensus forecasts for MSCI Europe, MSCI China, MSCI USA, MSCI World and MSCI Asia ex Japan indices. Left display as of April 25, 2026. Right display as of March 31, 2026. Source: Bloomberg, FactSet, MSCI and AB
Asia’s economic growth is driven by powerful demographic forces. Excluding Japan, the continent is home to 60% of the world’s population, according to the United Nations. It also has a relatively young population with a median age of 32 versus 38 in the US and 44 in Europe. And the middle-income class in Asia has more than doubled over the past decade to 2.25 billion in 2024, which accounts for 56% of the region’s total population the IMF reports.
These conditions offer fertile ground for selective investors to search for undervalued beneficiaries of the big trends that will fuel AxJ returns in the years ahead. These include AxJ companies that are participating in the AI technology infrastructure boom, or what we call “backdoor AI.” Companies in South Korea, China and Taiwan provide many mission-critical components that support global AI products, and typically trade at discounts to US peers. Asian companies also play a big role in the provision of critical raw materials and defense products—market segments that are seeing rising demand amid heightened geopolitical stresses. Corporate governance improvement is another exciting theme for equity investors. South Korea and China are championing regulatory incentives for companies to pursue profitability and boost shareholder returns. Companies in both countries are paying out more to shareholders in dividends and share buybacks. Our research also shows that Asian exports have been resilient to trade shocks, with both technology and non-tech exports.
Asian equities offer hidden value in dynamic companies across fast-growing economies
Trevor Kwong Portfolio Manager, Asia ex Japan Value Equities
2026 Real GDP Forecast (YoY Percent)*
Africa and Middle East
Latin America
2010
Other
18.1
27.1
Asia ex Japan
Asia ex-Japan and China
4.5
5.1
Aisa ex-Japan
16.6
17.6
33.3
17.8x
EPS Growth 2026* (YoY, Percent)
MSCI Asia ex Japan vs. MSCI World Price/Forward Earnings (Next 12 Months)
MSCI Asia ex Japan
MSCI World
52.3
12.1x
MSCI AxJ Discount: 32% Average Discount: 16%
In this video, Sammy Suzuki, Head of Emerging Market Equities at AllianceBernstein, explores the structural trends defining the next phase of emerging-market investing. He discusses how attractive valuations, improving corporate earnings, indirect AI beneficiaries and rising demand for power are creating opportunities across emerging markets, particularly in Asia. Watch the video to discover where Sammy sees the most compelling investment opportunities and why AllianceBernstein remains constructive on the region's long-term outlook.
Sammy Suzuki Head of Emerging Markets Equities
