UBS has upgraded its outlook for the MSCI Emerging Markets (EM) index, predicting it will reach 1,640 by December 2026. This positive shift is driven by strong earnings momentum, improved financial conditions, and renewed investor interest in diversification. The bank cited the strongest expected earnings growth among global equity regions as a key factor in its assessment.

UBS analysts are forecasting a 20% earnings-per-share growth for MSCI EM this year, buoyed by China's economic recovery, the rapid expansion of artificial intelligence, and resilient domestic demand. They also emphasized a favorable macroeconomic environment, including a softer U.S. dollar, easing financial conditions, and supportive monetary policy, which should encourage capital inflows into emerging markets.

Beyond China, UBS favors markets like India and Indonesia, highlighting compelling domestic growth drivers. Despite a strong performance in 2025, UBS believes that emerging market equities remain attractively valued compared to developed markets. Continued underallocation by global investors suggests room for further inflows, with earnings delivery and policy support being critical to sustaining the rally into 2026.