Emerging Market Review, First Quarter 2026
The first quarter of 2026 unfolded against a backdrop of renewed geopolitical tension and a sharp repricing of energy markets. A roughly 70% spike in oil prices, driven by disruptions to key supply routes, triggered a broad risk-off environment across EM economies. Currencies weakened by 2.2%, and while the MSCI Emerging Markets Index (“the Index”) declined modestly by 0.2%, it still outperformed developed markets.
Beneath this volatility, however, the quarter offered a clearer view into how energy systems are increasingly shaping macroeconomic outcomes and market performance. What historically might have been treated as a cyclical commodity shock is now better understood as part of a structural repricing of energy dependence—one that is influencing inflation, fiscal balances, currency dynamics, and ultimately equity returns across regions.
On a regional basis, Latin America led, with Brazil and Colombia benefiting from commodity exposure and relatively favorable real rate environments. Asia was more mixed, with some energy-importing economies like India lagging amid rising input costs, while Korea and Taiwan benefited from continued strength in technology demand. Indonesia lagged amid fiscal concerns and external vulnerabilities, highlighting how countries with less resilient macro frameworks can come under pressure in periods of rising energy costs and tighter global financial conditions.
At the sector level, Information Technology led gains, supported by semiconductor and AI infrastructure buildout demand. Energy also performed strongly alongside oil prices, while Industrials and Utilities benefited from early signs of sustained infrastructure investment and electrification. Consumer-facing sectors lagged, particularly in China, where domestic demand remains uneven.
Figure 1. Emerging Market Returns by Select Region, Country and Sectors 
Source: Ridgeline
Portfolio Review
The Boston Common Emerging Markets Strategy returned +1.1% before fees, outperforming the Index. Performance was driven by positioning in areas already benefiting from structural capital allocation trends, particularly within Technology and Industrials.
Technology holdings such as Samsung Electronics, Delta Electronics, and Accton Technology delivered strong returns, supported by continued investment in AI-related infrastructure. This demand is increasingly linked to energy systems and computing capacity, with data center expansion reinforcing electricity demand and accelerating investment in power, grid infrastructure, and efficiency solutions across emerging markets.
Industrials also contributed meaningfully. Positions in companies such as WEG, CATL, and HD Hyundai Electric benefited from rising expectations for multi-year investment in electrification, grid infrastructure, and industrial automation. These areas are emerging as core beneficiaries of a broader capital cycle tied to energy system transformation rather than traditional cyclical recovery.
Detractors were concentrated in the Financials and Consumer Discretionary sectors. Indian banks faced macro headwinds, while consumer exposure in South Africa weighed on performance. The portfolio’s lack of exposure to conventional Energy also detracted in the short term, reflecting our focus on areas where capital is being structurally reallocated rather than where near-term price strength is most visible.
Figure 2. Boston Common EM Portfolio Quarterly Sector Attribution Effects
Source: Ridgeline. This presentation shows performance attribution for the Emerging Markets Equity Strategy. It is not composite-level attribution. The account’s performance, and the performance and weights of each of its sectors, were calculated monthly using the time-weighted rate of return method (TWR) in FactSet. Returns are presented in US Dollars net of transactions costs. Interest and dividends are accrued. The attribution was calculated using the portfolio’s monthly sector weights and sector returns, and those of the MSCI Emerging Markets. Because the portfolio experiences intra-month trading among sectors, the monthly attribution is an approximation only and is subject to loss in precision over time. Average sector weights over the analysis period are included for informational purposes but were not used in constructing the attribution analysis. The analysis is based on time-weighted monthly data, which is not subject to the larger precision loss of quarterly averages. The “Total Effect” is the sum of the “Allocation Effect” and “Selection Effect” and represents the total relative performance of the portfolio. The “Allocation Effect” is measured first by constructing the performance of a portfolio that uses the Emerging Markets Equity Strategy beginning-of-month sector allocation but buys MSCI Emerging Markets. The “Selection Effect” measures how much of the portfolio’s relative performance is attributable to stock selection. The “Selection Effect” is measured first by constructing the performance of a portfolio that replicates the Emerging Markets Equity Strategy stock selection decisions but maintains the sector allocation of the MSCI Emerging Markets. The “Selection Effect” compares the performance of this theoretical portfolio to the performance of the MSCI Emerging Markets.
Market Outlook and Positioning
If recent years were defined by trade and tariff dynamics, 2026 is increasingly shaped by energy systems and their role in economic and industrial strategy. The disruption in the Middle East has reinforced the link between energy dependence and macroeconomic vulnerability through inflationary pressures, currency depreciation, and constrained fiscal flexibility, particularly for energy-importing economies.
At the same time, this volatility is accelerating a transition already underway. EM governments and corporations are aligning investment in energy systems, manufacturing, and technology to reduce external dependence and build long-term cost advantages. What is emerging is not simply an energy transition, but a broader industrial rewiring.
This shift is visible in capital allocation. Investment is increasingly directed toward grid infrastructure, electrification, storage, and energy efficiency—areas that support both energy security and industrial competitiveness. These investments are linked to broader trends, including supply chain diversification, automation, and the expansion of digital infrastructure.
China provides a clear example of this evolution. As a net energy importer, it has reduced its exposure to external shocks through sustained investment in renewables, electrification, and grid infrastructure. This has not only improved resilience but also positioned China as a leading exporter within clean energy value chains. Continued policy alignment between industrial development and energy systems is likely to reinforce this advantage.
Across Asia, Korea and Taiwan remain closely tied to global technology demand. However, their energy dependence introduces a layer of macro sensitivity, reinforcing the importance of continued investment in electrification and efficiency. In contrast, Southeast Asian economies are earlier in this transition, leaving them more exposed in the near term but offering significant long-term investment potential as energy systems evolve.
Latin America presents a different profile. A mix of commodity exporters and strong renewable resource endowments provides relative resilience in the current environment. However, political cycles and fiscal dynamics remain key variables, particularly as higher energy prices interact with domestic policy decisions. Brazil stands out for its policy flexibility, supported by elevated real yields.
In EMEA, exposure to imported energy continues to shape outcomes. Eastern Europe remains sensitive to sustained price increases, while South Africa’s structural constraints underscore the importance of ongoing investment in power generation and grid reliability.
Across regions, a common thread is emerging: countries investing in domestic capacity, electrification, and infrastructure are increasingly differentiated from those reliant on external energy systems. This divergence is likely to widen over time, leading to greater dispersion in macro outcomes and equity returns.
Investment Implications
For investors, the implications of this transition are becoming more visible at both the macro and company levels, with energy systems influencing earnings growth, cost structures, and competitive positioning.
Three dynamics are particularly important.
- Electrification is reducing long-term cost volatility. Renewable energy, once installed, provides near-zero marginal cost power, creating a durable advantage for energy-intensive industries.
- Grid infrastructure is emerging as a critical bottleneck and a significant investment opportunity. The expansion and modernization of power networks are essential to support both renewable deployment and rising electricity demand, particularly from industrial activity and digital infrastructure.
- Industrial efficiency and automation are becoming increasingly important. Technologies that reduce energy intensity—such as advanced motors, automation systems, and process electrification—offer immediate economic returns and improve resilience to future shocks.
These trends are reinforcing a multi-year capital cycle across emerging markets. Rather than being driven by traditional commodity or demand cycles, this cycle is anchored in structural investment in energy systems and industrial capacity. As a result, return dispersion is increasing—both across countries and within sectors.
Companies positioned at the intersection of these trends—electrical equipment, automation, grid infrastructure—are already benefiting from sustained investment. At the same time, businesses with high exposure to energy costs and limited ability to adapt are facing increasing pressure.
Portfolio Positioning
During the quarter, we made modest adjustments to reflect this evolving landscape. We increased exposure to defensive sectors such as Consumer Staples and Healthcare, while selectively adding to high-conviction industrials during periods of market weakness—particularly in areas linked to automation and electrification.
We added to China and India, focusing on companies with strong positioning in structurally growing end markets and improving cost dynamics. We reduced exposure to Eastern Europe, where energy sensitivity remains elevated, and continued to prioritize high-quality companies with durable business models and attractive valuations.
Portfolio Activity
We initiated a position in Sino Biopharmaceutical, a diversified pharma company with a growing pipeline of innovative therapies, reflecting long-term demand growth in Healthcare across emerging markets.
In India, we purchased Avenue Supermarts, a leading value-focused retailer with strong execution and a long growth runway. The company’s progress in expanding renewable energy use across its operations aligns with broader trends toward cost efficiency and energy resilience.
We exited Bank Rakyat Indonesia due to rising policy uncertainty and a lack of a clear catalyst for improvement. We sold Hyundai Motor after strong share price appreciation exceeded our valuation framework. We also exited Emaar Properties, given increased geopolitical risk in the Middle East and the potential impact on its operating environment.
Transition Underway
The events of the first quarter reinforced a shift that is already well underway. Energy systems are becoming a defining feature of economic and market outcomes in emerging markets. What was once treated as an external variable is now a central determinant of growth, resilience, and competitiveness.
Near-term energy security concerns may prolong reliance on existing systems even as investment in new systems accelerates. Still, capital is being reallocated toward infrastructure, electrification, and efficiency. Industrial systems are being rebuilt around these foundations, reshaping the EM opportunity set for long-term investors. The critical question is how quickly these forces will be reflected in earnings, capital flows, and valuations across emerging markets.
In this piece:
Emerging Market Review, First Quarter 2026
The first quarter of 2026 unfolded against a backdrop of renewed geopolitical tension and a sharp repricing of energy markets. A roughly 70% spike in oil prices, driven by disruptions to key supply routes, triggered a broad risk-off environment across EM economies. Currencies weakened by 2.2%, and while the MSCI Emerging Markets Index (“the Index”) declined modestly by 0.2%, it still outperformed developed markets.
Beneath this volatility, however, the quarter offered a clearer view into how energy systems are increasingly shaping macroeconomic outcomes and market performance. What historically might have been treated as a cyclical commodity shock is now better understood as part of a structural repricing of energy dependence—one that is influencing inflation, fiscal balances, currency dynamics, and ultimately equity returns across regions.
On a regional basis, Latin America led, with Brazil and Colombia benefiting from commodity exposure and relatively favorable real rate environments. Asia was more mixed, with some energy-importing economies like India lagging amid rising input costs, while Korea and Taiwan benefited from continued strength in technology demand. Indonesia lagged amid fiscal concerns and external vulnerabilities, highlighting how countries with less resilient macro frameworks can come under pressure in periods of rising energy costs and tighter global financial conditions.
At the sector level, Information Technology led gains, supported by semiconductor and AI infrastructure buildout demand. Energy also performed strongly alongside oil prices, while Industrials and Utilities benefited from early signs of sustained infrastructure investment and electrification. Consumer-facing sectors lagged, particularly in China, where domestic demand remains uneven.
Figure 1. Emerging Market Returns by Select Region, Country and Sectors
Source: Ridgeline
Portfolio Review
The Boston Common Emerging Markets Strategy returned +1.1% before fees, outperforming the Index. Performance was driven by positioning in areas already benefiting from structural capital allocation trends, particularly within Technology and Industrials.
Technology holdings such as Samsung Electronics, Delta Electronics, and Accton Technology delivered strong returns, supported by continued investment in AI-related infrastructure. This demand is increasingly linked to energy systems and computing capacity, with data center expansion reinforcing electricity demand and accelerating investment in power, grid infrastructure, and efficiency solutions across emerging markets.
Industrials also contributed meaningfully. Positions in companies such as WEG, CATL, and HD Hyundai Electric benefited from rising expectations for multi-year investment in electrification, grid infrastructure, and industrial automation. These areas are emerging as core beneficiaries of a broader capital cycle tied to energy system transformation rather than traditional cyclical recovery.
Detractors were concentrated in the Financials and Consumer Discretionary sectors. Indian banks faced macro headwinds, while consumer exposure in South Africa weighed on performance. The portfolio’s lack of exposure to conventional Energy also detracted in the short term, reflecting our focus on areas where capital is being structurally reallocated rather than where near-term price strength is most visible.
Figure 2. Boston Common EM Portfolio Quarterly Sector Attribution Effects
Source: Ridgeline. This presentation shows performance attribution for the Emerging Markets Equity Strategy. It is not composite-level attribution. The account’s performance, and the performance and weights of each of its sectors, were calculated monthly using the time-weighted rate of return method (TWR) in FactSet. Returns are presented in US Dollars net of transactions costs. Interest and dividends are accrued. The attribution was calculated using the portfolio’s monthly sector weights and sector returns, and those of the MSCI Emerging Markets. Because the portfolio experiences intra-month trading among sectors, the monthly attribution is an approximation only and is subject to loss in precision over time. Average sector weights over the analysis period are included for informational purposes but were not used in constructing the attribution analysis. The analysis is based on time-weighted monthly data, which is not subject to the larger precision loss of quarterly averages. The “Total Effect” is the sum of the “Allocation Effect” and “Selection Effect” and represents the total relative performance of the portfolio. The “Allocation Effect” is measured first by constructing the performance of a portfolio that uses the Emerging Markets Equity Strategy beginning-of-month sector allocation but buys MSCI Emerging Markets. The “Selection Effect” measures how much of the portfolio’s relative performance is attributable to stock selection. The “Selection Effect” is measured first by constructing the performance of a portfolio that replicates the Emerging Markets Equity Strategy stock selection decisions but maintains the sector allocation of the MSCI Emerging Markets. The “Selection Effect” compares the performance of this theoretical portfolio to the performance of the MSCI Emerging Markets.
Market Outlook and Positioning
If recent years were defined by trade and tariff dynamics, 2026 is increasingly shaped by energy systems and their role in economic and industrial strategy. The disruption in the Middle East has reinforced the link between energy dependence and macroeconomic vulnerability through inflationary pressures, currency depreciation, and constrained fiscal flexibility, particularly for energy-importing economies.
At the same time, this volatility is accelerating a transition already underway. EM governments and corporations are aligning investment in energy systems, manufacturing, and technology to reduce external dependence and build long-term cost advantages. What is emerging is not simply an energy transition, but a broader industrial rewiring.
This shift is visible in capital allocation. Investment is increasingly directed toward grid infrastructure, electrification, storage, and energy efficiency—areas that support both energy security and industrial competitiveness. These investments are linked to broader trends, including supply chain diversification, automation, and the expansion of digital infrastructure.
China provides a clear example of this evolution. As a net energy importer, it has reduced its exposure to external shocks through sustained investment in renewables, electrification, and grid infrastructure. This has not only improved resilience but also positioned China as a leading exporter within clean energy value chains. Continued policy alignment between industrial development and energy systems is likely to reinforce this advantage.
Across Asia, Korea and Taiwan remain closely tied to global technology demand. However, their energy dependence introduces a layer of macro sensitivity, reinforcing the importance of continued investment in electrification and efficiency. In contrast, Southeast Asian economies are earlier in this transition, leaving them more exposed in the near term but offering significant long-term investment potential as energy systems evolve.
Latin America presents a different profile. A mix of commodity exporters and strong renewable resource endowments provides relative resilience in the current environment. However, political cycles and fiscal dynamics remain key variables, particularly as higher energy prices interact with domestic policy decisions. Brazil stands out for its policy flexibility, supported by elevated real yields.
In EMEA, exposure to imported energy continues to shape outcomes. Eastern Europe remains sensitive to sustained price increases, while South Africa’s structural constraints underscore the importance of ongoing investment in power generation and grid reliability.
Across regions, a common thread is emerging: countries investing in domestic capacity, electrification, and infrastructure are increasingly differentiated from those reliant on external energy systems. This divergence is likely to widen over time, leading to greater dispersion in macro outcomes and equity returns.
Investment Implications
For investors, the implications of this transition are becoming more visible at both the macro and company levels, with energy systems influencing earnings growth, cost structures, and competitive positioning.
Three dynamics are particularly important.
These trends are reinforcing a multi-year capital cycle across emerging markets. Rather than being driven by traditional commodity or demand cycles, this cycle is anchored in structural investment in energy systems and industrial capacity. As a result, return dispersion is increasing—both across countries and within sectors.
Companies positioned at the intersection of these trends—electrical equipment, automation, grid infrastructure—are already benefiting from sustained investment. At the same time, businesses with high exposure to energy costs and limited ability to adapt are facing increasing pressure.
Portfolio Positioning
During the quarter, we made modest adjustments to reflect this evolving landscape. We increased exposure to defensive sectors such as Consumer Staples and Healthcare, while selectively adding to high-conviction industrials during periods of market weakness—particularly in areas linked to automation and electrification.
We added to China and India, focusing on companies with strong positioning in structurally growing end markets and improving cost dynamics. We reduced exposure to Eastern Europe, where energy sensitivity remains elevated, and continued to prioritize high-quality companies with durable business models and attractive valuations.
Portfolio Activity
We initiated a position in Sino Biopharmaceutical, a diversified pharma company with a growing pipeline of innovative therapies, reflecting long-term demand growth in Healthcare across emerging markets.
In India, we purchased Avenue Supermarts, a leading value-focused retailer with strong execution and a long growth runway. The company’s progress in expanding renewable energy use across its operations aligns with broader trends toward cost efficiency and energy resilience.
We exited Bank Rakyat Indonesia due to rising policy uncertainty and a lack of a clear catalyst for improvement. We sold Hyundai Motor after strong share price appreciation exceeded our valuation framework. We also exited Emaar Properties, given increased geopolitical risk in the Middle East and the potential impact on its operating environment.
Transition Underway
The events of the first quarter reinforced a shift that is already well underway. Energy systems are becoming a defining feature of economic and market outcomes in emerging markets. What was once treated as an external variable is now a central determinant of growth, resilience, and competitiveness.
Near-term energy security concerns may prolong reliance on existing systems even as investment in new systems accelerates. Still, capital is being reallocated toward infrastructure, electrification, and efficiency. Industrial systems are being rebuilt around these foundations, reshaping the EM opportunity set for long-term investors. The critical question is how quickly these forces will be reflected in earnings, capital flows, and valuations across emerging markets.
The Boston Common All Account Emerging Markets Equity composite includes all discretionary, fee-paying accounts managed by Boston Common Asset Management in its Emerging Markets Equity strategy that bear explicit commission costs, regardless of size or tax status. The strategy is benchmarked to the MSCI Emerging Markets Index. Inception Date: 12/31/2012. Creation Date: 12/31/2012.
The MSCI Emerging Markets (or “EM”) Index is a free float-adjusted market capitalization weighted index that is designed to measure equity market performance in the global emerging markets. The EM Index covers many emerging market country indices. Designation as an emerging market is determined by a number of factors. MSCI evaluates factors such as gross national income per capita; market depth and liquidity; local government regulations; perceived investment risk; foreign ownership limits and capital controls; and the general perception by the investment community when determining an “emerging” classification of a market.
This piece is intended as an editorial review of a survey of risk considerations and does not constitute investment advice, a solicitation, or an offer to buy or sell any security. Past performance does not guarantee future results. All investments involve risk, including the risk of loss of principal.
References to third-party research, publications, and data sources are provided for informational purposes only. Boston Common Asset Management does not warrant the accuracy or completeness of third-party information cited herein. Readers should consult original sources and qualified professional advisors before making any investment decision.