GAM – Dollar, geopolitics and AI: the forces shaping emerging markets
10 APR, 2026
By Ygal Sebban, Investment Director and Head of the Emerging Markets Equity Team at GAM
The war in the Middle East remains unpredictable, and the broader impact of the situation is driven by two main factors: the extent of damage to key regional oil infrastructure and the duration of any closure of the Strait of Hormuz. This will ultimately determine how much oil prices rise and how long they remain elevated, leading to higher inflation and a negative impact on global growth. The extreme risk scenario remains: an unexpected geopolitical escalation or attempts by Iran to continue targeting key infrastructure, including desalination plants, would be unfavorable for growth over extended periods. We believe our exposure to precious metals should help mitigate the potential negative impact of this extreme scenario.
The factors supporting emerging markets over the long term — such as demographic growth, urbanization, and the rise of the middle class — remain intact. Trade tensions have eased in recent months and, despite structural challenges in China, the country’s growth outlook has stabilized and improved, supported by strong economic policy measures.
The Federal Reserve’s rate-cutting cycle largely depends on inflationary pressures and the slowdown in global growth, as is the case for many emerging market central banks. We believe the current strength of the US dollar is temporary and that structural weakness remains, driven by growing concerns over the sustainability of US fiscal policy — an environment that tends to support stronger emerging market currencies. Meanwhile, many emerging economies continue to benefit from high real interest rates and relatively healthier sovereign balance sheets, with positive carry enhancing investment returns.
In our view, emerging market equities offer attractive valuations (forecast price/earnings ratio for 2026 of 13x) and are undervalued. Supported by intact secular growth, emerging markets generally offer faster macroeconomic growth than developed markets. We believe our thematic exposures are well positioned for this environment and see a wide range of opportunities ahead.
The portfolio is positioned around several secular themes, including emerging domestic consumption and consumer credit, upstream technology, and the energy transition. We also favor companies that generate high levels of free cash flow.
We believe China has both the capacity and the willingness to support its economy as it deals with the slowdown in the real estate sector and the impact of tariffs. The multi-year “anti-involution” campaign means that China is gradually introducing policies across sectors to address deflation, including measures to promote fair, open, and lawful market competition, as well as anti-dumping actions.
Global capital expenditure on artificial intelligence is expected to remain high in the coming years, supporting earnings growth in the Asian technology sector. We focus on the upstream segment of the value chain and favor memory-related stocks. We also see value in Chinese technology software companies.
By contrast, we are not exposed to the Indian technology sector, which we continue to view as expensive and overly exposed to US growth. We also believe that opportunities in the utilities, consumer staples, and healthcare sectors are limited.
