Soaring profits in emerging markets build the case for a raging bull market
Asian tech firms are driving the results, but profits are also improving in other sectors
Published Sun, Jun 21, 2026 · 09:36 PM
FOR the first time in four years, companies in emerging markets are beating profit estimates, giving investors a fresh reason to believe the bull market is just getting started.
Companies in the MSCI EM Index have reported average annual earnings above expectations set a year ago for the first time since April 2022, data compiled by Bloomberg shows.
Asian tech firms are driving the results, but profits are also improving in other sectors of the market, from Indian oil refiners to Brazilian electricity companies.
With emerging-market stocks riding gains of nearly 30 per cent this year, evidence of healthy profit growth is signalling to bulls that the rally is being built on solid fundamentals, rather than speculative froth.
That is prompting investors including Morgan Stanley and JPMorgan Chase to predict that gains will spread beyond artificial intelligence-related stocks.
“This is a genuine inflection point,” said Ninety One UK’s Archie Hart. “The market is finally being validated by fundamentals rather than running ahead of them.”
The weighted average earnings per share (EPS) reported by MSCI companies in the 12 months through May was 95.1 index points, rising above analysts’ blended-forward estimates of 94.6 made a year ago.
Stronger earnings may persuade more asset managers to shift money to emerging-market stocks, helping drive the next stage of the rally.
A 5 per cent shift from US portfolio weightings would translate into roughly a 30 per cent increase in emerging-market allocations due to the relative sizes of the markets, according to Hart’s calculations.
He also highlighted the fact that emerging-market technology companies still trade at a steep discount to their US peers while generating faster earnings growth as another reason to be bullish.
An index of US semiconductor equipment makers trades at more than 46 times estimated 12-month forward earnings, compared with 12.3 times for the MSCI EM Information Technology Index.
The earnings surprises are part of a comeback in emerging markets that took hold in 2025. Profits started to improve last year on the back of more AI spending and China’s economic stimulus. Before that, EM profits fell by 25 per cent between 2022 and 2024 as higher interest rates sapped growth.
Among AI-related juggernauts, South Korea’s SK Hynix reported first-quarter profit 43 per cent above estimates, Samsung Electronics exceeded projections by 16 per cent, and Taiwan Semiconductor Manufacturing Co beat forecasts by 5.7 per cent.
Among other top performers, Indian Oil Corp exceeded estimates by 33 per cent, while Brazilian electricity producer Eneva posted a 44 per cent beat.
“Performance across different regions will likely continue to vary, but the direction of travel across virtually all of them is now positive, which has not been true for most of the past decade,” said Morgan Stanley Investment Management’s deputy chief investment officer Jitania Kandhari.
Still, the dominance of the AI trade is raising concerns about concentration risk, she said. Asian companies are beating expectations by a wide margin, compared with the rest of the emerging-market universe, where the surprises are more modest or negative.
Energy companies started beating earnings estimates this quarter, and financial companies crossed the threshold at the end of 2025. Commodity and industrial firms are reporting profits close to expectations.
But missed estimates remain the rule in other parts of the market. Consumer staples and consumer discretionary companies are among the biggest laggards, while healthcare, real estate and utilities are also underperforming forecasts.
“There is still narrowness under the hood,” said Ashish Chugh, a money manager at Loomis Sayles. “Much of the EPS growth will come from the tech sector.”
Broader recovery
There are other factors to support the case for a wider earnings recovery. As China emerges from deflation, investors see scope for a broader industrial recovery. Equity issuance is also slowing and buybacks are increasing, boosting EPS.
Since 2010, the country’s stock market had been flooded with new share issuance, suppressing EPS growth by as much as six percentage points even when underlying businesses performed well, said Hart, who says that trend is now reversing.
JP Morgan Asset Management (JPMAM) predicts a revival across emerging markets that will underpin earnings growth.
The environment should favor industrial, defense and commodity sectors as China’s economy recovers and inflation accelerates, said Anuj Arora, chief investment officer for emerging-market equities at JPMAM.
“A softer dollar, ongoing deficit spending in major economies, and a multi-year AI and infrastructure capex cycle continue to create a constructive backdrop for emerging markets,” he said. BLOOMBERG
