For the first time in four years, companies in emerging markets are beating profit estimates, giving investors a fresh reason to believe the bull market is just getting started. Companies in the MSCI EM Index have reported average annual earnings above expectations set a year ago for the first time since April 2022, according to data compiled by Bloomberg. Asian tech firms are driving the results, but profits are also improving in other sectors of the market, like Indian oil refiners and Brazilian electricity companies.
Fundamentals Underpin the Rally
With emerging-market stocks riding gains of nearly 30 per cent this year, evidence of healthy profit growth is signalling to bulls that the rally is being built on solid fundamentals, rather than speculative froth. That’s prompting investors like Morgan Stanley and JPMorgan Chase & Co. to predict that gains will spread beyond artificial intelligence-related stocks.
“This is a genuine inflection point,” said Ninety One UK Ltd.’s Archie Hart. “The market is finally being validated by fundamentals rather than running ahead of them.”
Earnings Beat Details
The weighted average earnings-per-share reported by MSCI companies in the 12 months through May was 95.1 index points, rising above analysts’ blended-forward estimates of 94.6 made a year ago. Stronger earnings may persuade more asset managers to shift money to EM stocks, helping drive the next stage of the rally. A five per cent shift from U.S. portfolio weightings would translate into roughly a 30 per cent increase in EM allocations due to the relative sizes of the markets, according to Hart’s calculations.
He also highlighted that emerging-market technology companies still trade at a steep discount to their U.S. peers while generating faster earnings growth as another reason to be bullish. An index of U.S. semiconductor equipment makers trades at more than 46 times estimated 12-month forward earnings, compared with 12.3 times for the MSCI EM Information Technology Index.
Regional and Sector Performance
The earnings surprises are part of a comeback in emerging markets that took hold in 2025. Profits started to improve last year on the back of more AI spending and China’s economic stimulus. Before that, EM profits fell by 25 per cent between 2022 and 2024 as higher interest rates sapped growth.
Among AI-related juggernauts, South Korea’s SK hynix Inc. reported first-quarter profit 43 per cent above estimates, Samsung Electronics Co. Ltd. exceeded projections by 16 per cent, and Taiwan Semiconductor Manufacturing Co. beat forecasts by 5.7 per cent. Among other top performers, Indian Oil Corp. exceeded estimates by 33 per cent, while Brazilian electricity producer Eneva SA posted a 44 per cent beat.
“Performance across different regions will likely continue to vary, but the direction of travel across virtually all of them is now positive, which has not been true for most of the past decade,” said Morgan Stanley Investment Management’s deputy chief investment officer Jitania Kandhari.
Risks and Outlook
Still, the dominance of the AI trade is raising concerns about concentration risk, she said. Asian companies are beating expectations by a wide margin, compared with the rest of the EM universe, where the surprises are more modest or negative. South Korea's benchmark Kospi index topped 9,000 points for the first time on June 18, 2026, on the back of a tech-fuelled rally led by chip titans Samsung and SK hynix.
