Emerging markets began 2026 with resilience and strong gains, but India and Indonesia underperformed, a Deutsche Bank report noted. While the MSCI EM index rose 8%, India and Indonesia were the only major markets to see declines.
Emerging markets showed notable resilience despite heightened volatility at the start of 2026. However, India and Indonesia remained underperformers, even as emerging market assets delivered a strong start to the year, according to a Deutsche Bank report.
EM Equities Show Mixed Performance
The report noted that emerging market (EM) equities posted robust gains in January, with the MSCI Emerging Markets index rising over 8 per cent, supported by broad-based outperformance across regions. It stated "The only major EM equity markets down for the month were India and Indonesia - the latter under stress on concerns around governance and liquidity after MSCI warned of potentially downgrading them to frontier market status".
Markets such as Peru, South Korea and Turkiye emerged as top performers during the month, reflecting improved risk appetite and catch-up in allocations amid supportive global macro conditions. However, India and Indonesia were the only major EM equity markets to register declines. Indonesia came under pressure due to concerns over governance and liquidity, after MSCI flagged the possibility of a downgrade to frontier market status.
Broader Market Resilience
Despite increased market volatility driven by geopolitical risks, fiscal concerns and shifting narratives around artificial intelligence and global growth, the report highlighted that most EM asset classes managed to stay resilient. EM hard currency sovereign bonds recorded modest gains, extending their positive return streak to nine consecutive months, while EM local currency debt posted its sixth straight monthly gain, aided by currency strength and carry returns.
Outlook and Near-Term Risks
Looking ahead, Deutsche Bank said emerging markets remain fundamentally well-positioned to benefit from improved global policy support, easing tariff-related pressures and relatively stable energy prices, though greater differentiation across markets is expected as the global policy easing cycle matures
It stated "With market vol picking up into end of last month, a lot of the EM winners from turn of the year are starting February off under risk of unwinding in positioning". (ANI)
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