Q3 2026 CIO Review and Outlook

Emerging markets continued to deliver strong year-to-date returns in 2026, although the third quarter served as a reminder that the path higher is rarely linear. After a powerful first-half rally led by artificial intelligence (AI), semiconductors and other growth-oriented sectors, markets experienced a broad correction in July before stabilizing through the remainder of the quarter. Emerging markets consequently lagged developed markets, while the fundamental backdrop remained broadly constructive.

Several factors contributed to the volatility. Geopolitical tensions in the Middle East, including concerns over oil supply routes and the Strait of Hormuz, pushed energy prices higher and weighed on investor sentiment. At the same time, uncertainty surrounding the timing and trajectory of U.S. interest-rate led to higher Treasury yields, creating a more challenging environment for risk assets globally.

At the country level, some of the strongest-performing markets earlier in the year experienced the sharpest pullbacks. South Korea and Taiwan saw volatility in July before recovering through August and September. In South Korea, market swings appeared disproportionate to underlying fundamentals. Export growth remained healthy, supported by robust semiconductor demand, while corporate earnings trends continued to improve. Taiwan demonstrated resilience, benefiting from sustained demand for advanced semiconductor technologies.

Conversely, several previously lagging markets proved more defensive. China and parts of Southeast Asia held up relatively well during the quarter. The September meeting between U.S. President Donald Trump and Chinese President Xi Jinping signaled a constructive tone on trade, although semiconductor export restrictions remained unresolved. China also introduced its first nationwide mortgage-interest subsidy for first-time homebuyers and continued targeted measures to support economic activity. While the pace of recovery remained uneven across sectors, policymakers continued to demonstrate a willingness to provide incremental support.

India underperformed as foreign capital outflows, currency weakness and rising energy prices weighed on investor sentiment. In contrast, Latin America, led by Brazil, remained a relative bright spot, supported by domestic political developments and improving economic expectations.

Despite the quarter’s volatility, our broader outlook remains constructive. We continue to see a compelling opportunity set across emerging markets and Asia, supported by improving earnings growth, attractive valuations in select markets and multiple long-term structural growth drivers. 

TECHNOLOGY AND INNOVATION

Technology and innovation remain among powerful drivers of structural opportunities across emerging markets and Asia.

In South Korea, semiconductor companies continue to offer attractive long-term opportunities. Valuations remain reasonable, shareholder returns are improving through higher dividends and buybacks, and demand fundamentals remain robust. Recent market weakness appears to reflect heightened retail investor activity and leverage rather than any meaningful deterioration in business conditions. We believe such periods of volatility can create opportunities for long-term investors.

Taiwan remains equally important within the global technology ecosystem. While valuations are generally higher than in Korea, they continue to be supported by strong demand and critical positioning within the AI supply chain. The ongoing buildout of infrastructure, data centers and advanced computing capabilities continues to drive demand across a wide range of technology companies throughout the region.

Our investment approach is not dependent on identifying the ultimate winners of AI. Instead, we focus on the broader ecosystem, seeking companies that provide the infrastructure, components and services necessary to support AI adoption globally. In our view, many of the most attractive opportunities continue to reside in the “picks-and-shovels” providers enabling this technological transformation. 

THREE OPPORTUNITIES

Our positive long-term view on emerging markets and Asia is supported by a broad improvement in earnings growth. This represents a meaningful departure from much of the prior decade.

We see three structural forces supporting a more favorable investment backdrop.

First, corporate governance continues to improve across the region. Governments, regulators and exchanges are placing greater emphasis on shareholder returns, capital efficiency and value creation. In Japan, the Tokyo Stock Exchange’s focus on companies trading below one-time price-to-book value has encouraged higher dividends, share buybacks, asset rationalization and improved governance practices. South Korea’s Corporate Value-Up Program aims to address the longstanding “Korea Discount” and improve capital allocation. Similar initiatives in China, Singapore, Malaysia and Thailand are creating a favorable environment for long-term shareholders.

Second, AI and technology are creating a new cycle of growth opportunities. Asia occupies a central role in the global technology supply chain, from advanced semiconductors and electronic components to manufacturing equipment and communications infrastructure. As technology investment accelerates globally, we believe many companies across the region stand to benefit regardless of which end applications ultimately prove most successful. In many ways, Asia remains an indispensable supplier of the tools, infrastructure and expertise needed to enable AI development in our view.

Third, rising global investment in infrastructure, industrial capacity and national security is creating a favorable backdrop for industrial businesses across Asia. Governments and corporations are investing heavily in manufacturing, energy infrastructure, automation and supply-chain resiliency.

These trends are generating new demand for a broad range of industrial companies positioned at the center of these capital spending cycles. These structural trends also create opportunities beyond their immediate beneficiaries. Technology expansion requires both financing and raw materials, while industrial development supports demand for commodities and financial services. Taken together, we believe corporate governance reform, technology and innovation, industrials, and financials and commodities represent emerging-markets opportunities for the years ahead.

OUTLOOK

As we enter the fourth quarter, markets are likely to remain influenced by the aftereffects of the summer correction, elevated energy prices and uncertainty surrounding the path of U.S. interest rates. That said, visibility could improve as investors gain greater clarity on monetary policy, economic growth and the upcoming earnings season, allowing fundamentals to reassert themselves as the primary driver of returns.

Our recent meetings with companies across technology, industrial, renewable energy and consumer sectors reinforced our view that Asia’s growth drivers remain intact. Investment in advanced computing, communications networks and data-center capacity continues to support a wide range of businesses across the region, creating opportunities beyond a narrow group of market leaders.

Economic conditions remain uneven across emerging markets. Regionally, Taiwan and South Korea continue to be supported by export growth and ongoing technology investment. In China, efforts to strengthen domestic capabilities and support economic activity may create selective long-term opportunities, although consumer demand remains subdued and the recovery uneven. India continues to offer attractive structural growth characteristics despite near-term pressures from higher energy prices, while Southeast Asia is benefiting from supply-chain diversification and increasing foreign investment.

Beyond technology, we view industrials as an increasingly important source of growth. Reshoring, infrastructure spending and geopolitical realignment continue to support demand across a range of industrial businesses. These trends also create opportunities in financials and commodities, which benefit from rising capital investment and economic activity. As a result, we continue to maintain a diversified exposure across technology, industrials, financials, commodities and selective Latin American opportunities.

While volatility is likely to persist, corporate earnings across many emerging markets continue to improve, supported by stronger governance, innovation and capital investment. We view periods of market weakness as a normal feature of long-term investing rather than a reason to alter our discipline.

Against this backdrop, we believe emerging markets and Asia continue to offer a diverse set of opportunities for long-term investors. Our focus remains on identifying companies with durable competitive advantages, strong balance sheets and sustainable earnings potential while maintaining a disciplined approach to risk management. The goal is not simply to participate in rising markets, but to generate attractive risk-adjusted returns across a range of market environments.

Sean Taylor
Chief Investment Officer