MSCI EM rose 1% for the week, driven by North Asia tech stocks; early 1QCY26 earnings came in above expectations

Overview

This report is Goldman Sachs' EM Weekly Kickstart, focusing on weekly performance in emerging market equities, early progress in the 1QCY26 earnings season, regional and sector allocation, fund flows, valuations, and macro risks. The report notes that MSCI EM rose about 1% during the week, supported by North Asia tech stocks led by Taiwan and South Korea, and outperformed developed market equities; meanwhile, rising oil prices and the Iran conflict are pressuring some oil-importing countries.

Core views

The core view is that divergence within emerging markets will persist. Goldman Sachs continues to prefer North Asia over South Asia, and maintains the trade idea of long MSCI Korea and Taiwan versus short MSCI India, Philippines, and Thailand, while raising the stop-loss to protect gains already made. On earnings, early 1QCY26 disclosures show profit growth ahead of expectations, with South Korea and Taiwan in particular driving upward EPS revisions at the index level; by sector, technology earnings are beating expectations while consumer-related industries are weaker. On allocation, the report emphasizes diversification and prefers South Korea, China, Brazil, and South Africa, as well as technology hardware, internet, and commodity sectors.

Analysis framework

The report combines market index performance, FactSet and I/B/E/S earnings revisions, MSCI valuation metrics, EPFR and exchange flow data, macro policy events, and relative regional/sector performance to form its views. Starting from weekly market moves, the analysis further breaks down EPS growth contributions, earnings beat rates, sales beat rates, valuation levels, fund positioning, and foreign investor flows, and maps these into regional and industry allocation recommendations.

Methodology notes

• Earnings Tracking1QCY26 Earnings Season Progress and EPS Growth Tracking

  Use the proportion of companies reported, market cap coverage, YoY EPS growth, earnings beat rates, and sales beat rates to assess the quality of the earnings season.

  The report shows that about 10% of MSCI EM companies, representing about 28% of market cap, have reported 1QCY26 results, with EPS growth tracking around 37% YoY, above the roughly 28% consensus expectation at the start of the quarter.

• Regional AllocationPreference for North Asia Relative to South Asia

  Compare upward revisions in North Asia tech earnings with the relative performance of South Asia and oil-importing countries after the impact of oil prices and external shocks.

  Taiwan and South Korea performed strongly during the week, while markets such as India, the Philippines, and Thailand were relatively under pressure, leading the report to continue preferring North Asia over South Asia.

• Valuation AnalysisNTM P/E and Standard Deviation vs. 10-Year Average

  Use the forward 12-month P/E's standard deviation relative to its 10-year historical average to gauge valuation attractiveness.

  MXEF is trading at about 11.8x NTM P/E, roughly 0.4 standard deviations below its 10-year average, indicating valuations are not expensive.

• Fund Flow AnalysisEPFR and Exchange Foreign Flow Tracking

  Use fund inflows/outflows and exchange foreign buying/selling to gauge support or pressure from flows.

  Emerging market equities saw about US$2.8bn of inflows during the week, with Taiwan contributing about US$4.1bn of inflows, but several markets have seen notable foreign selling since the Iran war began.

Asset mapping & comparison

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

• MSCI EM

  Core covered index

  Strengths

  Weekly gain, upward revisions to 2026E EPS, and valuations below the 10-year average.

  Weaknesses

  Significant internal regional and sector divergence, with overall earnings sentiment weakened by geopolitical conflict.

  Comparison

  Outperformed developed market equities, but performance relies mainly on North Asia tech heavyweights.

  Risks

  Rising oil prices, the Iran conflict, foreign outflows, and margin pressure could weaken index performance.

• North Asia

  Relatively preferred region

  Strengths

  Taiwan and South Korea performed strongly, and tech earnings revisions are driving EPS growth.

  Weaknesses

  China is a modest drag on this quarter's EPS growth.

  Comparison

  More preferred by Goldman Sachs relative to South Asia.

  Risks

  If tech earnings disappoint or global risk appetite declines, North Asia's advantage may narrow.

• MSCI Korea & Taiwan vs. MSCI India, Philippines, Thailand

  Relative value trade

  Strengths

  Entry at 100, current at 108, target at 115, with positive returns already generated; stop-loss raised from 90 to 101 to protect potential gains.

  Weaknesses

  The trade depends on North Asia continuing to outperform South Asia.

  Comparison

  Long a basket weighted toward South Korea and Taiwan, short a basket weighted toward India, the Philippines, and Thailand.

  Risks

  A rebound in South Asia, a drop in oil prices, or a correction in North Asia tech could hurt relative returns.

• Technology Hardware and Internet Sectors

  Overweight sector theme

  Strengths

  Technology earnings tracking is ahead of initial consensus expectations and is an important source of North Asia and EM EPS upgrades.

  Weaknesses

  Valuation and positioning may be more dependent on risk appetite.

  Comparison

  Stronger performance than consumer sectors.

  Risks

  Crowded AI/tech trades, insufficient earnings delivery, or a global tech equity correction.

• Brazil Equities and Rate-Sensitive Assets

  Macro thematic allocation

  Strengths

  The report notes that Brazilian equities have a high negative correlation with local rates; falling rates are typically positive for equities, and rate-sensitive and domestic-demand-exposed assets have greater upside.

  Weaknesses

  Sensitive to the rate path and macro expectations.

  Comparison

  Within emerging markets, it has a relatively high negative correlation to declining local rates.

  Risks

  A rebound in inflation, delayed rate cuts, or fiscal risks could weigh on valuations.

Key data

• MSCI EM Weekly Performance+1% w/wDriven by North Asia markets with high tech weights, and outperformed developed market equities.
• Taiwan Weekly Performance+7%The report says Taiwan was one of the main markets driving MSCI EM higher.
• South Korea Weekly Performance+4%South Korea was supported by technology and upward earnings revisions.
• MSCI EM Valuation11.8x NTM P/EAbout 0.4 standard deviations below the 10-year average.
• EM 2026E EPS Revision Over the Past Month+6.6%Index-level earnings expectations have been revised up notably.
• 1QCY26 Reported CoverageAbout 10% of companies, about 28% of market capThe earnings season is still at an early stage.
• 1QCY26 EPS Growth TrackingAbout 37% YoYAbove the roughly 28% consensus expectation at the start of the quarter.
• North Asia EPS Growth ContributionMore than 90%, about 34 percentage points / 37 percentage pointsSouth Korea and Taiwan are the main contributors, while China is a modest drag.
• Earnings Beat / Miss35% / 31%The beat rate is slightly higher than the miss rate.
• Sales Beat / Miss53% / 36%Sales performance is relatively strong, but may be accompanied by rising input costs that pressure margins.
• Emerging Market Equity Fund FlowsAbout US$2.8bn net inflowTaiwan saw about US$4.1bn of inflows, while many other markets saw outflows.

Impact & implications

For portfolios, the report supports regional and sector differentiation within emerging markets rather than simply buying the whole index. North Asia technology and the earnings revision cycle still have relative advantages, while rate-sensitive assets such as Brazil may offer upside in a rate-cutting or falling-rate environment; however, rising oil prices, geopolitical conflict, and weak consumer earnings mean a more cautious stance is needed toward South Asia, oil-importing countries, and consumer-sensitive sectors.

Risks

• The Iran conflict and physical supply disruptions may continue to push oil prices higher, hurting oil-importing countries and margins.
• MSCI EM earnings sentiment has turned negative since the US-Iran conflict; if EPS upgrades in North Asia slow, index-level support will weaken.
• Weak earnings in consumer-related sectors may weigh on overall market breadth.
• Sales beats exceeding profit beats suggest high input costs may erode margins.
• Foreign investors have sold some emerging markets notably after the Iran war, and flows may remain unstable.

What to watch

• Whether EPS growth and beat rates remain intact as more MSCI EM companies report 1QCY26 earnings over the next month.
• Whether earnings upgrades in South Korea and Taiwan can continue to offset negative revisions in other EM markets.
• The impact of oil prices, the Iran conflict, and supply disruptions on South Asia and oil-importing countries.
• Whether EM fund flows broaden beyond concentrated inflows into Taiwan to other markets.
• Brazil's rate path and the relative performance of local rate-sensitive equities.
• Whether technology hardware, internet, and commodity sectors continue to outperform downstream and consumer-sensitive sectors.