Outlook
Two of our Global Equity Markets team portfolio managers recently attended a summit in Hong Kong. The event brought together over 5,000 participants, including investors, policymakers and industry leaders, and focused on themes such as the rewiring of global trade, Asia’s growing economic influence and cross-border innovation. Below are the key takeaways from the event.
Optimism for second half of 2026
Companies across sectors expressed cautious optimism for the second half of 2026 despite ongoing geopolitical pressures. A South Korean auto manufacturer and a global power tools company both highlighted resilience in their outlooks, even as higher input costs, partly driven by Middle East tensions, persist.
Both companies expect improved performance in the second half, supported by company-specific initiatives such as new product launches and easing tariff pressures. Notably, neither indicated a need to raise prices in the near term. This suggests that earnings may be more back-end loaded than currently reflected in market expectations, potentially creating valuation opportunities as conditions improve.
This dynamic also brings greater focus to how companies fund their strategic initiatives.
Capital discipline as a differentiator
A key theme was the balance between growth ambitions and funding requirements. A polysilicon producer is considering equity issuance to fund investments in associates, despite having a low debt profile. In contrast, a Chinese electric vehicle manufacturer has outlined significant capital expenditure plans to support global expansion and product optimisation.
These examples highlight differing approaches to capital allocation. We expect investors to scrutinise funding strategies more closely, particularly where ongoing capital needs could dilute returns or weigh on valuations. As a result, capital discipline is becoming an increasingly important differentiator.
Shareholder alignment and capital flows
Discussions also highlighted the importance of aligning capital decisions with shareholder interests. State-linked companies in the Middle East, some of which we hold, remain focused on national objectives. Through engagement, we continue to emphasise the importance of improving alignment with minority shareholders.
Greater alignment could support increased international capital flows, particularly as regional geopolitical risks stabilise. It also strengthens our access to management and ability to influence long-term outcomes.
Demand trends remain broadly resilient, but the investment narrative is evolving. Execution and capital discipline are becoming more important drivers of returns, in our view, with company-specific factors increasingly outweighing broader market trends.
Market review: May 2026
Equities in the emerging Asia region advanced collectively. Large artificial intelligence (AI) firms in the region drove strong equity market gains in South Korea and Taiwan. Demand for data centres and capital expenditure by cloud service providers contributed to the market's advance. Supply tightness also supported the AI theme. Indian stocks fell slightly on geopolitical tensions. After the Indian government urged less gold buying, jewellery stocks experienced negative impact. Higher import duties on gold and silver also weighed on returns.
Chinese stocks faced pressure after new rules on cross-border trading. This led to a broad selloff in the market. However, chip stocks rose on signs of new progress in the sector. This could help close the gap with global leaders. Indonesian stocks fell after MSCI removed six firms from its index.
Equities in the emerging Europe, Middle East and Africa region saw small gains. Hopes that Middle East fighting would halt helped lift markets. This helped to pad some negativity from Turkish stocks, which swung lower due to a court ruling on the opposition leader. Hungarian equities fell on claims of false historical budget data.
Equities in the emerging Latin America (LatAm) region ended lower. Brazilian stocks led losses across the region. Its state-backed oil company, Petrobras, fell in tandem with with oil prices. Mexico’s central bank cut interest rates following easing price pressures in April.
Outlook
Two of our Global Equity Markets team portfolio managers recently attended a summit in Hong Kong. The event brought together over 5,000 participants, including investors, policymakers and industry leaders, and focused on themes such as the rewiring of global trade, Asia’s growing economic influence and cross-border innovation. Takeaways include the outlook for second half of 2026, capital discipline and shareholder alignment.
Market review
EM stocks rose in May 2026, helped by two main drivers: geopolitical developments and artificial intelligence (AI). Hopes for a US–Iran peace deal lifted sentiment. At the same time, the AI theme spread beyond the leading technology firms and expanded into robotics. For the month, the MSCI EM Index returned 9.71% while the MSCI World Index delivered 4.61%, both in US dollars.
Index Definitions
Past performance is not an indicator or a guarantee of future performance. Indexes are unmanaged and one cannot invest directly in an index.
The MSCI All Country World Index is a free-float-adjusted, market capitalisation-weighted index designed to measure the equity market performance of global developed and emerging markets (EM).
The MSCI Brazil Index is designed to measure the performance of the large- and mid-cap segments of the Brazilian market.
The MSCI China Index captures large- and mid-cap representation across China A shares, H shares, B shares, Red chips, P chips and foreign listings (e.g., ADRs).
The MSCI EM Asia ex Japan Index captures large- and mid-cap representation across two of three developed markets (DM) countries (excluding Japan) and eight EM countries.
The MSCI EM Latin America Index captures large- and mid-cap representation across five EM countries in Latin America.
The MSCI EM EMEA Index captures large- and mid-cap representation across 11 EM countries in Europe, the Middle East and Africa (EMEA).
The MSCI EM Index is a free-float-adjusted, market capitalisation-weighted index designed to measure the equity market performance of global EMs.
The MSCI India Index is designed to measure the performance of the large- and mid-cap segments of the Indian market.
The MSCI Mexico Index is designed to measure the performance of the large- and mid-cap segments of the Mexican market.
The MSCI South Korea Index is designed to measure the performance of the large- and mid-cap segments of the South Korean market.
The MSCI World Index captures large- and mid-cap representation across 23 DM countries.
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.
Commodity-related investments are subject to additional risks such as commodity index volatility, investor speculation, interest rates, weather, tax and regulatory developments.
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, nationalisation, 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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