According to Bloomberg Business, major Wall Street banks are predicting another strong year for emerging markets in 2026, with dollar weakness and the artificial intelligence investment explosion expected to boost the asset class further. Emerging market bonds in local currencies have already delivered investors a 7% return this year, which is the best performance since 2020. The currency gauge is up more than 6% as well. Morgan Stanley strategists say the rally should continue, supported by expectations of more Federal Reserve interest-rate cuts as the US economy slows. These tailwinds are building on what’s already been a solid year for emerging market investments.
Why This Matters
Here’s the thing about emerging markets – they’re often the first to feel the pain when the dollar strengthens and the last to benefit when it weakens. But when conditions align like this, the returns can be massive. We’re talking about countries that have been building their economic foundations while flying under many investors’ radars. Now with AI investment pouring into global tech hubs and manufacturing centers across Asia and Latin America, there’s real momentum building.
The AI Factor
This isn’t just about currency plays anymore. The AI explosion is creating demand for everything from chip manufacturing in Taiwan and South Korea to data center construction across multiple emerging economies. These countries aren’t just passive beneficiaries either – many are becoming innovation hubs in their own right. So when Wall Street talks about AI driving emerging market growth, they’re not just referring to companies buying Nvidia chips. They’re talking about entire supply chains and tech ecosystems developing outside traditional Western markets.
What It Means for Investors
For the average investor, this creates some interesting opportunities beyond just buying an emerging markets ETF. We’re seeing specialized funds focusing on everything from Asian tech to Latin American infrastructure. But here’s the catch – emerging markets are volatile. That 7% bond return sounds great until you remember these markets can swing dramatically based on Fed policy, commodity prices, or geopolitical tensions. Still, with the Fed likely cutting rates and the dollar weakening, the stars seem to be aligning for a multi-year run. The question is whether this time will be different from previous emerging market rallies that fizzled out.
