View from the markets: Is emerging market equity outperformance sustainable?

Emerging-market equity outperformance can persist, but it is narrowly dependent on a rebound in Chinese internet stocks or further gains in technology hardware and semiconductors.

• Emerging-market equities have beaten developed markets year to date and have delivered roughly twice the returns of the MSCI World in US dollars since the beginning of 2025, after underperforming since 2010.
• The 2025 phase was driven mainly by Chinese Broadline Retail and Interactive Media and Services stocks, which have since lagged sharply; these industries were grouped with Software & Services into a broad tech-software category.
• A second phase was led by technology hardware and semiconductor stocks, which remained up around 45% year to date despite the sell-off that began in late June.
• The analysis includes the China A Onshore index in tech hardware because it contains major domestic Chinese artificial-intelligence and robotics companies; other emerging-market stocks performed broadly in line with developed-market peers.
• Chinese software stocks trade at multiples roughly half those of US counterparts, but this discount is longstanding and low valuations do not guarantee better returns; hardware and semiconductors have stronger support from robust earnings, results that exceeded expectations, and upward revisions to forecasts.

Takeaway: Investors should not treat emerging-market outperformance as broad-based: its sustainability rests on Chinese internet and interactive-media stocks rebounding or on continued semiconductor and hardware gains, while the near-term spending of US hyperscalers may keep supporting EM technology companies despite doubts about the profitability of their capital expenditure.