At about this time one year ago, few even among emerging markets' most vociferous champions would have imagined the extent and durability of EMs' 'marvelous' 2025.
So, does 2026 spell an even further extended run - perhaps gathering new innovation, industry investment, and assets alongside it? Or is a comedown rather in store?
At Talisman, we would characterize the bulk of this year's outlooks as cautiously optimistic, leaning towards the former. But as in all things EM, there are important questions threaded between the lines and, indeed, the regions.
Here are six we'll be tracking as the calendar turns.
I. Macro: Credibility Arrives, Now Comes the Test?
Many outlooks rightly point out that 2025 presented a 'prove it' year for EMs; as the global economy absorbed heightened volatility and trade shocks, most markets showed unusual resilience, owed primarily to well-entrenched, under-appreciated monetary policy and fiscal management. Among all the superlatives we've seen tossed around, the most persuasive one is also the most grounded: credibility was earned.
Along the way, it must be said that a consistently weaker dollar, rising questions about dollar dominance and dollar volatility, and record runs on precious metals also helped in that cause. EM was one of, if not the, poster child for 'reasonable alternatives' in 2025 - and outperformed.
To repeat as a champion, however, is always tough.
Whether that Goldilocks mix of sound choices and favorable conditions remains is less certain for 2026. What is more certain: a contentious Fed Chairmanship appointment and likely shifts in US policy aggressiveness, more tariff reshuffling (regardless of the US Supreme Court's decision on their current legality), and settling bets on many of the grand questions this year posed, but never quite answered - both for the global economy and investors - regarding artificial intelligence.
EM sailed smoothly this year because of good unseen work put in for years, if not decades, that was suited to the dynamics of the moment. To approach that same success, 2026 will likely demand a bit more nimbleness, because its instability may not - oddly enough - be quite so favorable, even if it now seems more predictable.
II. A Wave of Promotions & Upgrades: Can They Meet Potential?
Many EMs and especially frontier markets saw their stature rise in 2025, boosted by sovereign credit rating upgrades (sometimes even two or three), key watchlist additions, and the anticipated promotion to EM status for Vietnam. The former trend has had the effect of bunching a far wider array of economies, and their government bonds, together - creating opportunity. The latter promotions could promise billions of dollars in rebalanced index inflows.
That should mean good news, but global investors will have their own say. On whether a stronger rating (with a tighter yield) will attract new interest in sovereign debt, or whether a more diverse mix in EM index products - say augmented with Vietnamese equities, or Saudi Sukuk - stirs the pot.
However worthy these changes, the past has shown it isn't always a straight line to sustained gains; it certainly won't be if 2025's improvements show any early wither.
III. Gulf Mania: Real or Mirage?
One of the standout (and frankly, a bit oversold) stories of 2025 was the herding of global firms into the GCC - especially private markets and alternatives managers, though also larger fund houses and investment banks, too.
Even if the reasons are clear in a land race, it's empty-calories PR to announce a new office. Some firms have shown a stronger commitment for the region; a few have sealed meaningful investments and deals before year's end, justifying their footprint. Absolutely none of which is hidden.
We're not sure whether the point of over-saturation has already passed, though. Should sovereign strategy, diversification and financing needs continue to evolve for the Gulf states and their various visions, there could be lots of room to run. But our bet is that overheated competition, and a preference in the region for trusted relationships, will narrow the winners down. Perhaps considerably. In other words, even if the momentum continues, we don't believe all of this mania is real.
What we do expect to see more of in 2026: GP stakes in their investment partners, the likes of Lunate's, Wafra's, and QIA's to end the year.
IV. China: Cracks, But Staying the Course?
China flooded the zone with trade in 2025; it buffeted both Donald Trump and the secular ex-China trend in EM (somewhat); it started the year debuting DeepSeek but ended it buying Nvidia chips; its real estate sector remains a mess, and there were signs at year's end of slowing domestic consumption, even as its consumers grow in culture, and their target among luxury brands remains. All of this is true at once.
And for 2026, there frankly might be an argument for more of the same: China's influence has undoubtedly grown, whether openly or surreptitiously, especially as the US has turned away from Europe; its efforts on future-facing commitments remain robust, and the vision for its place in the world hasn't really changed (even if the political governance from President Xi has reportedly evolved). If 2025 was a year when all of that trajectory was meant to be challenged, the outcome was mostly a miss.
Whether China unto itself remains an attractive EM investment in the short term is a fair, opportunity-specific question. But its outward continuity and practicality in its affairs creates something of a floor for rest of the EM world in 2026. Or in any case, another partner to turn to and leverage.
V. Digging In: Will Blocs Further Stiffen?
In the discussion of geoeconomics, twin interesting narratives have sprung up towards year's end: one is the tip-toeing caution towards full declaration of 'decoupling' or 'dedollarization'. The other is, well, essentially that exact thing just in slightly different terms. More and more institutional and academic research now shows that regional blocs have taken firmer hold around trade, and in fact, had begun doing so well before Trump retook office.
Perhaps newer: we've also seen this influence appearing in multilateral finance and fora. Adding gloss and blend to Belt-and-Road realities on the ground, alongside digital currency initiatives to move beyond the dollar for financing.
For 2026, then, one of the big outstanding questions is whether this sells: if traditionally non-aligned EM giants continue to drift into this bloc mindset (or skirt it). Brazil, Mexico, India, Nigeria, and South Africa among others have been notable holdouts, certainly in negotiations with the US administration over trade, but also in exercising their advantage of sheer size and optionality for broader independence. Will they be forced to make choices they so far have avoided? Will they bite?
The other (probable) big question will surround re-engagement with Russia, presuming its pariah status is partially reduced once an end of its war waged upon Ukraine is reached. The extent to which this could reorder or, more likely, reinforce the bloc trend - as well as create localized effects for a wide range of its neighboring (and increasingly agnostic) EMs - is worth watching.
VI. Reputations & 'The Secular Thesis'
Finally, while we spend most days thinking about EM in a global context, the often-observed challenge arose again this year, and is set to stay: ill-timed domestic EM politics rubbing up against a constructive environment. And they make a difference.
There is a lot of change in the air. Particularly in Southeast Asia, with big growth stories buffeted by instability, ranging from corruption issues to cross-border skirmishing violence. The question has likewise long added a political risk premium for investment in many Sub-Saharan African states (which are seeing seeing newly-widened interest going into 2026).
With less opprobrium, Latin America is shifting rightward, something EM commentators have broadly welcomed (perhaps the major exception, in Venezuela, may be coming that way by force); this trend has also come to Southern and Eastern Europe too, albeit with more local dissent. A level of functional stability holds in the GCC and Caucasus-Central Asia corridor, even if the politics in the latter are often hotter under the surface than would appear.
So it is that this last question actually reaches directly back to our first: reassurance of credibility. Structural gains are crucial, but a questionable reputation (i.e. what is graphically in the news, rather than buried in analysts' research) will always impede confidence and curtail wider (mass) investor interest. There is an argument that on 2025's rote gains, far outpacing DM counterparts in key asset classes, EM investment should be exploding, as should its product set. Broadly speaking, neither has. So there is more work to do; work of which investors should - must - be a part in their choices and engagement.
A destabilized 2025, one that definitively showed the world it has no liberal-order 'policeman' of old, may augur still more raucousness in 2026; at a wide angle, that is not always for the worse (though tragically it can be, both economically and for humanity). It explains why the old fall-back, "selectivity", has been so popular as a catchword in the last months of the year, and in EM outlooks, too. What now looks good will need to prove it's fundamentally solid, returns value, and can minimize the downside over two to three years: going from cyclical to secular. And that's why a repeat is hard.
Increasingly this may be the nature of global investment, no matter the geography. Little is guaranteed. But for all of 2025's successes and upheavals, this particular expectation hasn't changed: it has always been the investor's nature in EM to ask more. Perhaps, with cautious optimism, it will deliver.
