Stick with emerging-market stocks, especially in China and AI, UBS advises
Firms with direct exposure to AI demand, especially in China, are set to shine among emerging-market equities next year, Swiss bank says
The Swiss investment bank said EM markets still offered multiple opportunities, supported by a “normalising” macro environment in 2026. This included a rebound in global growth, visible fiscal support in developed markets and Federal Reserve balance-sheet expansion, which is expected to keep long-end US yields in check, easing some of the yield headwinds for emerging-market equities, according to UBS.
AI remained a key driver of EM performance and would stay healthy given solid cash flows, low leverage among big spenders and relatively attractive valuations, UBS said. It added that about 23 per cent of the MSCI EM index comprised companies with direct revenue exposure to AI demand, but these names accounted for more than 42 per cent of 2025 returns and drove almost all of the EPS upgrades this year.
These companies’ earnings growth was expected to remain above 20 per cent in 2026 before normalising in 2027, according to the bank. UBS preferred Chinese consumer-facing AI names over Korean and Taiwanese peers, given more reasonable valuations and less aggressive re-rating.
The bank reiterated its overweight stance on China versus India, citing supportive signs such as easing tariff risks and growing AI revenue.