Brazil, India, and China tech lead UBS’s selective EM equity approach

Investing.com -- UBS is maintaining a Neutral stance on emerging market (EM) equities overall while recommending a selective approach that favors specific markets with resilient earnings and strong domestic demand.

The MSCI EM Index has risen 18% year-to-date and currently trades at 13.2x forward earnings, which is above its 10-year average.

Despite this performance, UBS analysts cite ongoing trade negotiations, elevated valuations, and potentially weaker economic data as factors creating near-term uncertainty.

UBS has set index targets of 1270 for December 2025 and 1310 for June 2026, with the index currently at 1256 as of August 20.

The bank’s preferred markets include India, China tech, Brazil, Malaysia, and the Philippines, which stand out for their resilient earnings, solid domestic demand, and structural growth drivers.

For investors who are under-allocated to emerging markets, UBS recommends preparing to add exposure to these favored markets during market pullbacks.

Recent US tariff announcements affecting Brazil, India, and semiconductors have brought trade policy risks back to the forefront, potentially keeping volatility elevated in the short term.

Weaker seasonality in late summer and lower liquidity may amplify this volatility.

For India specifically, UBS maintains an Attractive stance despite near-term volatility from geopolitical complexities and tariff risks.

The country’s closed economy and low export dependence should help cushion economic impacts, while strong domestic demand and an expected earnings recovery support the positive outlook.

On China, UBS remains Neutral on mainland equities due to structural growth challenges and policy uncertainty, but Attractive on China tech, which benefits from targeted policy support and robust AI capital spending. Consensus expects 22-28% earnings growth for the Hang Seng Tech Index in 2025-26.

For Brazil, UBS maintains an Attractive view despite recent US tariff escalations, citing the country’s closed economy, limited US export exposure, attractive valuations, and prospects for monetary easing.

Looking ahead, UBS sees a constructive medium-term outlook for EM equities, supported by potential rate cuts, lower yields, a softer US dollar, and attractive relative valuations.

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