Emerging markets rose amid weekly volatility, with earnings beats and oil price shocks coexisting

Overview

This report is Goldman Sachs' weekly emerging markets strategy publication, EM Weekly Kickstart. It summarizes MSCI EM weekly performance, earnings and valuation, fund flows, macro policy, the impact of renewed US-Iran escalation on EM equities, and provides regional and sector allocation preferences. The overall conclusion is that emerging markets still rose amid volatility, early earnings season results are stronger than elevated expectations, valuations are not expensive, but fund flows and geopolitical risks are still weighing on risk appetite.

Core views

The core views include: first, MSCI EM rose 0.6% over the week, led by Brazil, Taiwan, and China, while Korea and South Asian markets sensitive to oil prices lagged. Second, the 2Q earnings season is currently stronger than expected, with both earnings and sales beats outnumbering misses. Third, Brent Crude rebounded to about US$100/bbl due to renewed escalation in Middle East conflict, and oil and gas export markets such as Brazil, Colombia, and Saudi Arabia have shown relative resilience, while oil and gas import markets and conflict-exposed markets have performed more weakly. Fourth, foreign flows remain weak, with EM equities seeing net outflows of about US$0.3bn this week, and foreign selling has been significant since the Iran war. Fifth, Goldman Sachs maintains a diversified allocation, favoring tech-heavy Taiwan and Korea as well as idiosyncratic markets such as Brazil, South Africa, Hungary, and Greece.

Analysis framework

The report uses a weekly market strategy framework, comparing price performance, earnings revisions, valuation, fund flows, macro policy, commodity prices, and geopolitical events within a single perspective. At the regional level, it compares markets such as North Asia, South Asia, LatAM, MENA, and EM Europe; at the sector level, it compares Tech, Financials, Materials, Industrials, Energy, and Consumer sectors; and at the asset level, it combines the MSCI EM index, regional indices, commodities, and FX expectations to assess 12-month total returns.

Methodology notes

• Market strategyRegional and sector allocation framework

  Determine overweight, market-weight, or underweight positions based on expected total return, earnings growth, valuation, and risk exposure.

  The report compares markets by MSCI EM weight, index level, CY2026/CY2027 EPS growth, 12-month index target, local currency return, FX return, and dividend yield, and forms regional allocation recommendations accordingly.

• Earnings analysisEarnings surprises and EPS revisions

  Track the earnings and sales performance of reported companies versus market expectations, as well as the direction of EPS revisions for future years.

  The early 2Q earnings season sample shows median earnings surprise of about 3%, with 49% of companies beating earnings expectations versus 36% missing, and 42% beating sales expectations versus 8% missing.

• Macro event analysisOil price and geopolitical risk shock

  Judge relative market performance through rising oil prices, changes in energy flows, and conflict exposure.

  After Brent Crude rebounded to about US$100/bbl, oil and gas import markets and conflict-exposed markets came under pressure, while some oil and gas export markets were relatively defensive.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• MSCI EM / MXEF

  Core research subject

  Strengths

  Valuation is below the 10-year average, 2026E earnings continue to be revised up, and early 2Q results are stronger than expected.

  Weaknesses

  Market breadth remains narrow, foreign flows have weakened recently, and geopolitical and oil price risks are increasing volatility.

  Comparison

  Relative to US equities and other major developed markets, EM valuations still trade at a discount, even after sector adjustment.

  Risks

  Later earnings season samples may fall short of early results; continued foreign outflows may suppress valuation recovery.

• Taiwan

  Overweight market

  Strengths

  High weighting in tech hardware, with the report assigning about 18% 12-month USD total return.

  Weaknesses

  Recent foreign outflow pressure is significant, making flows a short-term drag.

  Comparison

  Compared with other large-weight EM markets, Taiwan has stronger earnings elasticity but weaker fund flows.

  Risks

  Pullback in AI/Tech momentum, continued foreign selling, and valuation volatility.

• Korea

  Overweight market

  Strengths

  The report projects very high CY2026 EPS growth and 12-month USD total return expectations, while foreign investors still posted inflows this week.

  Weaknesses

  The market fell about 2% this week, lagging amid rising oil prices and momentum pullback.

  Comparison

  Compared with Taiwan, Korea's short-term performance is weaker, but Goldman Sachs still lists it among its preferred tech-weighted markets.

  Risks

  Tech cycle volatility, oil price shocks, and failure to meet high earnings expectations.

• Brazil

  Overweight market and idiosyncratic opportunity

  Strengths

  Rose about 2% this week and has shown relative resilience during rising oil prices; the equity market is sensitive to lower local rates, and rate-cutting cycles have historically been supportive.

  Weaknesses

  The election cycle may bring volatility, and performance has diverged significantly in some historical pre- and post-election periods.

  Comparison

  Compared with broader EM, Brazil is also driven by local rates, elections, and changes in foreign positioning.

  Risks

  Election uncertainty, reversal in the rate path, and commodity price volatility.

• India

  Market-weight market but short-term laggard

  Strengths

  2Q earnings surprise is positive, and foreign investors posted US$0.6bn of inflows this week.

  Weaknesses

  The market fell about 2% this week and came under pressure from rising oil prices as an oil-sensitive market.

  Comparison

  Earnings performance is better than the median surprise in North Asia and LatAM, but oil price exposure is higher.

  Risks

  Rising oil prices, FX pressure, and pressure on valuation and earnings expectations.

• Energy / Oil exporters

  Beneficiary or defensive segment under oil price shock

  Strengths

  Energy outperforms when oil prices rise, and oil and gas export markets such as Brazil, Colombia, and Saudi Arabia show relative resilience.

  Weaknesses

  If oil prices fall back or the geopolitical premium fades, the short-term relative advantage may weaken.

  Comparison

  Relative to oil and gas import markets, oil and gas export markets perform more steadily during Brent Crude rebounds.

  Risks

  Oil price reversal, policy intervention, and slowing global demand.

Key data

• MSCI EM weekly performance+0.6% w/wThe report title says it closed about 1% higher in a volatile week, while the performance section in the main text states MSCI EM rose 0.6%.
• MSCI EM valuation10.2x forward P/EAbout 1.9 standard deviations below the 10-year average.
• EM 2026E EPS weekly revision+0.6% w/wEarnings revisions continue to improve.
• 2Q reported coverage106 companies, 9% of company count, 25% of market capThe MSCI EM 2Q earnings results table shows a total sample of 1178 companies.
• 2Q median earnings surprise2.9% to about 3%Regionally, MENA and India are positive, while North Asia and LatAM are negative.
• Earnings beats vs misses49% beat vs 36% missedFor sales, it is 42% beat vs 8% missed.
• Foreign flows-US$0.3bnKorea saw inflows of US$1.4bn, India saw inflows of US$0.6bn, and Taiwan saw outflows of US$2.2bn.
• Brent Crudeabout US$100/bblDriven by renewed escalation in Middle East conflict and reduced energy flows.
• MSCI EM 12-month target2,000The table implies 18% local currency return, 1% FX return, 2% dividend yield, and 22% USD total return.
• Sector overweightTech Hardware & Semis, Banks, Capital Goods, Metals & MiningThe report says sector allocation is pro-cyclical and emphasizes core themes.

Impact & implications

The implication for portfolios is that EM earnings revisions and valuation discounts support a constructive medium-term allocation, but in the short term it is necessary to avoid excessive concentration in a single theme or region. Taiwan and Korea are supported by earnings elasticity in tech hardware, idiosyncratic markets such as Brazil and South Africa provide diversification, oil and gas export markets are relatively advantaged under energy shocks, while more caution is needed toward South Asian markets sensitive to oil prices, conflict-exposed markets, and markets under heavier foreign outflow pressure.

Risks

• Renewed escalation in Middle East conflict keeps oil prices elevated, pressuring oil and gas import markets and risk appetite.
• Foreign flows continue to weaken; in particular, if large-weight markets such as Taiwan continue to see outflows, MSCI EM performance may be dragged down.
• The 2Q earnings season is still in its early stage, and as more companies report, the current better-than-expected results may be diluted.
• A pullback in AI/Tech concentration and momentum trading may increase volatility in Taiwan, Korea, and the tech hardware sector.
• Brazil's election cycle may increase volatility, with historical performance showing significant dispersion.
• Global central bank policy, the US dollar, and FX changes may affect EM USD total returns.

What to watch

• In subsequent 2Q earnings releases, whether the earnings and sales beat/miss ratios continue to outperform expectations.
• Whether MSCI EM 2026E and 2027E EPS continue to be revised upward, especially in Korea, North Asia, CEE, parts of LatAM, and Tech H/W.
• Whether EM foreign flows recover from recent outflows back into inflows, with focus on Taiwan, Korea, and India.
• Whether Brent Crude stays around US$100/bbl, and the impact of oil prices on markets such as India, Egypt, Mexico, Qatar, and the UAE.
• Whether MSCI EM market breadth improves, and whether the AI/Tech rally continues to broaden from a narrow market.
• Brazil's rate path, election-related volatility, and changes in foreign positioning.