EM Equity Strategy Compass: 2H26 Outlook: The Broadening Question

Research evidence excerpt

EM Equity Strategy Compass: 2H26 Outlook: The Broadening Question

Viewpoint |

19 Jul 2026 16:00:14 ET │ 44 pages

EM Equity Strategy Compass

2H26 Outlook: The Broadening Question

CITI'S TAKE

Global/EM Equity Strategy

Despite recent volatility, the MSCI EM is still up c20% YTD, though gains

have come from a narrow set of countries/sectors. As in a global context, David Groman AC

client conversations are returning to the likelihood of “broadening” +44-20-7986-4346

performance in 2H26. The success of broadening depends on: (1) cyclical david.groman@citi.com

improvement in macro data and EPS revisions, and (2) a sustained pause in

Tech outperformance. On cyclical recovery, economic data remains Nikhil N Jadhav, CFA AC

supportive, though EPS revisions are mixed and narrow. On Tech, implied +44-20-7508-0895

volatility is elevated and AI sentiment has waned, but the sector continues nikhil.nitin.jadhav@citi.com

to be supported by standout earnings growth, strong momentum, and AC Beata M Manthey, Ph.D.attractive valuations. If the macro environment remains favorable, including

easing geopolitical risks, there is scope for broadening. We therefore +44-20-7986-4349

upgrade China to Overweight. At the same time, we tactically reduce beata.manthey@citi.com

exposure to the AI theme, neutralizing Korea (O/W since mid-25) while EM Equity Strategymaintaining an Overweight stance on Taiwan.

Pierre Lau, CFA AC

Neutral EM — Around the start of the conflict in Iran, we downgraded EM to Neutral in AC Surendra Goyal, CFAour global allocation. Fundamentals remain strong and the macro backdrop has

ACturned more supportive. But EM remains exposed to the recent step-up in AI volatility Laura (Chia Yi) Chen

along with ongoing macro complexities (geopolitical re-escalation, Fed, El Niño).