Three Things We Are Watching
Rising bond yields. The year-to-date increase in US Treasury yields accelerated in the Q3 period. This supported the USD and acted as a headwind for emerging market equity performance. Higher energy prices are putting upward pressure on consumer prices. This is raising expectations that the US Federal Reserve will raise short term interest rates. Policy uncertainty and rising US fiscal debt is contributing to an increase in long term interest rates.
Seasonality at work. Equity markets are entering a seasonally weak period. Since 2016, the MSCI Emerging Markets index has declined on average in September and October.1 Energy and agricultural prices over these two months could shape the outcome this year. If prices stay elevated, markets may repeat this pattern. If prices fall from current highs, markets may break from it.
El Nino. The weather pattern known as El Nino is underway, bringing dry weather to Southeast Asia, India and Brazil. The Indian weather services is reporting “below-normal rainfall” in the Southwest monsoon season.2 The risk, in our view, is for higher food prices given damage to crops due to extreme heat. This will negatively impact purchasing power in lower income emerging markets.
Market Review
Emerging Market (EM) stocks rose in August 2026. Memory stocks regained their footing and recovered from the July sell-off. However, sentiment was periodically challenged by elevated US Treasury yields, renewed tensions in the Middle East and continued debate over the sustainability of AI-related investments.
Outlook
Looking ahead, we continue to expect varying returns across sectors. Nevertheless, we expect technology stocks to continue leading gains. Much of this should be driven by spending on AI infrastructure. Sustained spending supports multi-year economic growth and has broader impacts.
In the medium term, consumer spending is another theme that could influence performance in EM equities. Overall, EMs offer a range of opportunities. Investors can gain exposure to long-term growth trends, reasonable valuations supported by solid earnings growth.
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Endnotes
- Source: MSCI, September 1, 2026. The MSCI Emerging Markets Index captures large and mid cap representation across emerging markets countries. Indexes are unmanaged and one cannot invest directly in an index.
- Source: India Meteorological Services, July 31, 2026.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically.
The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries. There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Hong Kong and Taiwan could be adversely affected by its political and economic relationship with China.
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