In this article, Bedrock’s Head of Investment Advisory, Helena Eaton, explores one of our Top Market Themes for 2026: Emerging Markets Powering Ahead.
At the beginning of the year, Helena highlighted emerging markets as a key opportunity, supported by strong economic growth, an improving rate environment, and growing demand for AI-related technologies. Several Asian economies, including China, India, and South Korea, featured prominently in this outlook.
Six months on, she assesses how the theme has evolved, the factors that have driven performance, and where opportunities may emerge during the second half of the year.
Emerging market equities have indeed performed strongly, with the MSCI Emerging Markets Index rising 22% during the first half of 2026. A significant portion of this performance has been driven by the AI hardware theme, as the semiconductor and technology hardware sectors, which have delivered exceptional returns this year, account for more than 40% of the index.
Notably, this strong performance occurred despite the absence of the macroeconomic tailwinds we had initially anticipated. The inflationary impact of the conflict in the Middle East led to a stronger-than-expected US dollar and prompted the Federal Reserve to keep interest rates unchanged. At the same time, higher oil prices resulting from the conflict weighed on some emerging market economies, particularly India.
Performance across emerging market regions varied significantly during the first half of 2026. North Asian markets, particularly South Korea and Taiwan, were the standout performers, largely driven by the AI-related technology hardware trade.
In contrast, countries more exposed to the adverse effects of higher oil prices underperformed. For example, India’s Nifty Index declined during the first half of the year. Chinese equities delivered mixed results, with notable divergences between offshore and onshore markets as well as across sectors.
South Korea
The South Korean equity market experienced an extraordinary rally, with the KOSPI Index gaining 101% during the first half of 2026. However, the market has since retraced significantly from the record highs reached in the second quarter, largely due to a correction in semiconductor stocks.
The KOSPI has more than 50% exposure to the technology hardware and semiconductor sectors and is highly concentrated in just two companies, SK Hynix and Samsung Electronics, which together account for almost half of the index. Both stocks delivered exceptional gains during the first half of the year: SK Hynix rose more than 300%, while Samsung Electronics gained over 170%.
SK Hynix capitalised on the strong performance of its shares by raising more than USD 25 billion through an ADR issuance on Nasdaq in July. Although both stocks have since pulled back, their year-to-date returns remain impressive.
Leveraged single-stock ETFs linked to SK Hynix and Samsung Electronics have recently attracted market attention, as they have amplified volatility in both the underlying stocks and the KOSPI Index. As a result, intraday moves of around 10% have become increasingly common.
At the time of writing, the KOSPI Index is approximately 25% below the record high reached in June 2026 and is trading below its 100-day moving average for the first time in the past year. Unlike previous corrections in Korean equities, we are now beginning to observe softer inflows into leveraged ETFs, particularly those linked to Samsung Electronics, potentially signalling weaker investor conviction.[1]
Taiwan
Taiwan’s stock market is similarly concentrated. The Taiwan Stock Exchange Weighted Index allocates more than 70% of its weight to the semiconductor and technology hardware sectors, while Taiwan Semiconductor Manufacturing Company (TSMC) alone represents more than 20% of the index.
The market gained nearly 60% during the first half of 2026, although it subsequently experienced a correction as investors rotated out of semiconductor stocks.
We believe this rotation may have further room to run as investors continue to take profits following the exceptional rally earlier in the year. Nevertheless, end-demand for semiconductors remains strong and could provide longer-term support for the sector.
Chinese equities delivered mixed performance during the first half of 2026, with particularly strong divergence between onshore and offshore markets.
The CSI 300 Index, which comprises China’s largest domestically listed A-shares and has greater exposure to “hard tech” sectors as well as domestic industries such as financials, industrials, and consumer companies, outperformed and gained 7.5%.
By contrast, the MSCI China Index, which is predominantly composed of offshore-listed H-shares and has a greater tilt towards “soft tech” sectors, declined by 15%.
This divergence was even more apparent within the technology sector. The Hang Seng Tech Index, dominated by internet and platform companies, fell nearly 20% during the first half of the year, while the STAR 50 Index, representing China’s onshore hard-tech sector, rose 64% over the same period.
This performance gap suggests that the “AI bottleneck” trade, characterised by a preference for AI infrastructure providers over AI software and application companies, is also playing out in China, albeit within an equity universe that remains less widely followed by international investors.[2]
During July, we observed some reversal of this trend, with onshore hard-tech shares retracing part of their gains. However, the year-to-date performance gap between the Hang Seng Tech and STAR 50 indices remains substantial at approximately 55%.
For a sustained rotation from onshore to offshore Chinese equities to emerge, we would likely need to see an improvement in earnings growth, particularly within the internet sector, supported by new AI-related revenue opportunities. Such developments may take several quarters to materialise.
Indian equities underperformed during the first half of 2026, with the NIFTY Index declining almost 9%.
One of the key factors was the rise in energy prices following the conflict in the Middle East, which contributed to a deterioration in the macroeconomic environment, downward revisions to corporate earnings expectations, and continued foreign capital outflows.
Foreign investors sold a record USD 30 billion of Indian equities during the first half of the year, reducing foreign ownership to its lowest level in 14 years.[3] Compared with other markets in the region, Indian equities have historically been particularly sensitive to oil-price shocks, and this pattern has again been evident in the current environment.
Looking ahead, Indian equities could stage a recovery if a combination of lower oil prices, stronger economic growth, improving corporate earnings, and returning foreign capital flows materialises during the second half of the year.
In summary, the emerging markets theme has played out largely as expected during the first half of 2026, although the primary driver has been the AI hardware trade rather than the anticipated macroeconomic tailwinds.
Looking ahead to the second half of the year, we could see a further rotation away from technology hardware and a broadening of the emerging markets opportunity set across other sectors and countries.
Such a development would be particularly likely if tensions in the Middle East stabilise and the resulting pressure on energy prices begins to ease.
If you’d like to explore this theme further, or discuss how you can take advantage of opportunities in this area, please get in touch with us at info@bedrockgroup.com.
Helena Eaton, Head of Investment Advisory
Helena joined Bedrock Group in 2023, bringing over 20 years in the financial industry including experience from J.P. Morgan Private Bank, Citi, Deloitte, and UNDP.
She holds an MBA from London Business School, a PhD in Economics, is a CFA Charterholder, and actively contributes to the CFA Institute as a curriculum reviewer.
Disclaimer: Certain statements included within constitute ‘forward-looking statements.’ These statements, which may include words like ‘believes,’ ‘expects,’ or similar expressions, are subject to numerous risks and uncertainties. Actual results may differ.
References:
[1] Korea: keyindicators to watch after the sell-off, Societe Generale, 21 June 2026.
[2] Rotation Temptation, China Musings, Goldman Sachs, July 13, 2026.
[3] Room to Rebound, India Strategy, Goldman Sachs, July 11, 2026.
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