Emerging Markets Outlook 2026: Becoming a Key Pivot in a Fragmenting Global Order

Emerging Markets in the Global Power Restructuring

The World Bank and the International Monetary Fund have repeatedly emphasized a trend in recent years: the center of gravity of the global economy is slowly but steadily shifting from advanced economies to the South. The "2026 Emerging Markets Outlook" recently released by Triodos Investment Management once again confirms this assessment—emerging markets are moving from the periphery of the global system to its center, becoming a key variable in defining the development agenda for the coming decade.

The traditional global alliance system is loosening, and competition between the United States and China in key natural resources is intensifying. Mineral resources such as rare earths, lithium, cobalt, and copper not only support the expansion of AI computing power and the energy transition, but are also becoming the focus of great-power rivalry. Emerging markets happen to hold the say over these resources. Economies such as China, India, and Brazil are no longer willing to be mere policy takers from developed countries; instead, based on their resource endowments and market size, they are actively shaping international rules.

Structural Divergence Behind Growth Resilience

The report projects that emerging market GDP growth will remain at around 4% year-on-year in 2025 and 2026. This figure stands out against the backdrop of a slowing global economy. In early 2025, many countries rushed exports to the United States ahead of tariffs, making exports an important short-term growth engine. However, as U.S. tariff policies persist, Asian economies have begun shifting to other markets, and the trade landscape is being reshaped.

Resilience does not mean balance. Low-income countries such as Myanmar and Bolivia are lagging noticeably due to conflict, social unrest, and widening inequality. Growth divergence within emerging markets has become the norm: Asia benefits from AI-related investment and technological progress, with vibrant services activity; while parts of Africa and Eastern Europe remain constrained by high inflation stemming from food supply chain bottlenecks.

Global inflation has generally fallen, especially in Asia. The emerging market inflation rate is expected to fall to around 5% in 2026. Prudent monetary policy and improved fiscal management are helping to stabilize inflation expectations. However, structural inflationary pressures have not been eliminated, and food security and social stability remain fragile links.

Trade Turmoil and Short-Termism in Capital Flows

U.S. tariff increases are accelerating the restructuring of global supply chains. Emerging markets are no longer relying solely on traditional trading partners, but are seeking new partners and new sources of investment. This rebalancing is both a challenge and an opportunity to deepen regional cooperation. Mechanisms such as ASEAN and the African Continental Free Trade Area could play a more important role in trade diversion.

On capital inflows, sound domestic policies and the need for risk diversification are driving funds into emerging markets. Notably, sustainable investment funds outperformed traditional funds in early 2025, indicating that ESG themes are gaining support from actual performance. However, capital inflows are dominated by short-term funds, contributing little to infrastructure construction and long-term capacity building. Truly structural investment still requires more reliable institutional safeguards and policy certainty.

The Competitive Arena of Resources, AI, and the Energy Transition## The Competitive Arena of Resources, AI, and the Energy Transition

The explosive development of AI technology and the global energy decarbonization process have driven up demand for critical minerals. As owners of these resources, emerging markets have seen their position in global supply chains rise significantly. However, resource-exporting countries often face the risk of the "resource curse": price volatility, governance gaps, and environmental costs. The report cautions that major powers' partnerships with emerging markets are increasingly based on investment interests rather than development aid, and lack mechanisms to ensure sustainability.

This is a double-edged sword. Resource demand can bring export revenues and infrastructure investment, but it may also exacerbate corruption and conflict. How to convert resource revenues into a diversified economic structure is a long-term question that emerging markets must answer. When supporting mining projects, long-term investors need to embed environmental, social, and governance standards into their investment frameworks to avoid short-term gains eroding long-term social value.

The Shadow of Inequality and the Necessity of Inclusive Growth

The growth gains of emerging markets have not been shared equally. The AI revolution and trade restructuring may widen skill gaps and income disparities. Low-income countries, youth groups, and workers in informal employment face a heightened risk of marginalization. The report points out that the long-term potential of emerging markets in the future depends on whether economic gains can be distributed fairly and whether enough decent jobs can be created.

This is not only a moral issue but also a question of economic sustainability. Domestic-demand-driven growth requires the continued expansion of the middle-income group, a goal that can only be achieved through investment in education, healthcare, and social security. Inclusive growth strategies can also strengthen social cohesion and reduce the risk of political instability. Triodos particularly emphasizes that impact investing, social inclusion, and environmental stewardship must become integral components of investment strategies.

The Long-Term Investor's Perspective: From Short-Term Volatility to Quality of Life

While governments need to address security and defense issues, long-term investors should focus on substantive indicators that improve quality of life. Areas such as educational resources, clean energy, digital infrastructure, and inclusive finance are not only shortcomings in the social development of emerging markets but also troughs for value investing.

The report calls for a redirection of global capital to respond to the compounding of geopolitical, ecological, and social risks. Traditionally, investors have viewed emerging markets as volatile, high-return alternative assets. But today's emerging markets are different from the past: they possess more ample foreign exchange reserves, more prudent budget management, and stronger policy response capabilities. These fundamental improvements provide a more solid foundation for long-term investment.

In the coming years, the center of global growth will tilt further toward emerging markets. But this shift will not automatically bring prosperity. Countries that can navigate resource competition, domestic reforms, and external shocks will truly become the "anchors" of the global order; while those mired in conflict and inequality may become further marginalized.

For researchers and investors focused on the Global South, 2026 may be a watershed moment: emerging markets are no longer synonymous with "risk," but rather a key testing ground for global future growth and social progress.*This article is written based on the analysis in the "Emerging Markets Outlook 2026" published by Triodos Investment Management. Original link: https://www.triodos-im.com/articles/2025/emerging-markets-outlook-2026*