The World Economic Forum’s 2026 Risks Report is unequivocal: geo-economic confrontation now tops the global risk agenda. Governments are increasingly weaponising trade, finance, technology, sanctions, and supply chains – a decisive shift away from the post‑Cold‑War era of open markets and predictable rules. Markets have become arenas of strategic competition, not cooperation, driving heavier defence spending, more interventionist industrial policy and renewed strain on political alliances. These pressures fall disproportionately on Europe’s already‑tight fiscal space, meaning macro risk is tilting more toward developed Europe than toward core emerging markets.
Despite the rise in global geopolitical and economic risks, the structural investment case for emerging markets remains firmly intact. Emerging market (EM) economies continue to display stronger growth differentials, healthier policy frameworks, more attractive valuations and improving external buffers – including stronger foreign currency reserves, reduced external financing needs, improved debt profiles, and more robust balance‑of‑payments positions.
EM leadership in semiconductors, foundries, and artificial intelligence (AI)-linked supply chains, particularly in Taiwan, South Korea and China, combined with powerful domestic‑demand engines in India and Southeast Asia, provides robust structural growth that is largely insulated from the fiscal and defence‑driven headwinds facing developed markets.
EMs continue to trade at a significant discount to DMs1
Valuations reinforce that resilience: EM equities still trade at around 2.1x price‑to‑book and at roughly a 44% discount to developed markets. Valuation alone doesn’t guarantee outperformance, but it does create a substantial margin of safety. In an environment defined by geopolitical noise and policy tightening across developed markets, that cushion matters. Structural resilience, improving quality and attractive entry points mean EMs remain on solid footing despite elevated geopolitical risk.
For more on Asia ex-Japan Equity, China Equity and Global Emerging Markets Equity.
1 Between 30 June 2016 and 31 December 2025, the Price/Book discount for EM stocks versus DM stocks was an average 21%. Over the same time period, the Price/Earnings discount for EM vs DM stocks was an average 20%. Source: Bloomberg as of 31 December 2025.
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