Fact or Fiction?

Challenging the narratives around emerging markets investing

Emerging markets (EM) are often shaped by powerful narratives about growth, risk, currencies and cycles, but not all of them hold up under scrutiny. In our Fact or Fiction series, we cut through the noise to examine the assumptions investors make about emerging markets investing, separating enduring truths from persistent myths. By grounding market narratives in data, history and fundamentals, the series aims to help investors make more informed allocation decisions.

Fact or Fiction?

Amid geopolitics and weak sentiment that dominate headlines, many investors may choose to avoid the Chinese market. But look beneath the surface and there are many compelling investment themes in the world’s second-largest economy. Chinese companies are becoming global innovators, exports continue to rise as they diversify away from the US, domestic brands are strengthening, and shareholder returns are improving. So despite the risks, there are hidden strengths and opportunities to be found within China’s equity markets as part of a diversified portfolio.

The AB view

Chinese equities deserve closer attention from investors who may have avoided the market amid geopolitical tensions. We believe that China shouldn’t be viewed in isolation or as a risk to be avoided, instead, as its equity markets are inefficient and shares frequently mispriced, it offers attractive alpha potential.

A weakening US dollar is often framed as a tailwind for EMs—but is that a reliable investment fact? Historically, periods of dollar softness have coincided with stronger emerging-market asset performance, supported by easing financial conditions, improved capital flows and firmer local currencies. Yet not every dollar decline translates into sustained returns across all developing-world countries. A look at the long-term structural drivers can provide important insights into whether currency dynamics could be a catalyst to boost the broad opportunity set across equities, sovereigns and corporate bonds.

The AB view

EM assets have benefitted from a softer dollar, but if the greenback strengthens will this flip the script? Since the dollar remains overvalued even after weakening through 2025 and early 2026, we believe that now could be a good time for investors to reevaluate their positions and consider diversifying toward evolving opportunities across the developing world.

EM corporate bonds are often overlooked by investors as too niche or risky, but over time their biggest strength is more than yield alone — it’s resilience. Over the past decade, EM corporate debt has participated in market gains while cushioning downturns better than many developed-market alternatives. This is thanks to a natural “barbell” mix of US-dollar interest-rate and return-seeking credit exposures that tend to offset each other, offering a stabilizing, often underappreciated component for portfolios.

The AB view

EM corporates have a track record of resilience across market cycles and could help investors with diversified portfolios prepare for whatever conditions lie ahead.

Global investors have relatively low allocation to EM stocks, suggesting that despite the recent rebound, there’s limited confidence in the recovery’s resilience. But a different story is unfolding, driven by strengthening earnings, improving governance and structural shifts that are reshaping global growth.

The AB view

Whilst EM equities have seen fits and starts before, we think a clear difference is emerging between past short-cycle rebounds and a longer-term earnings-based recovery. Today’s backdrop, including broadening earnings growth and powerful structural forces such as AI infrastructure, governance reform and supply-chain realignment are creating new catalysts for durable value creation in EM equities that underpin the case for a long-term role in portfolios.

Concerns around China’s growth outlook persist, with weak domestic demand and property-sector stress reinforcing the view of a prolonged slowdown. Yet this narrative overlooks key developments: China met its 2025 growth target, equities have posted a second year of gains, and policymakers are providing targeted, measured support. Despite soft domestic demand, resilient exports and diversified trade flows are helping stabilize growth.

The AB view

China’s slower growth does not equate to a lack of opportunity. While the economy faces structural challenges and imbalances persist, the investment case is more positive than headlines imply. We think the deflationary environment and accommodative policy settings underpin a positive outlook for investors in Chinese government bonds.

Volatility is a feature of emerging markets, but not necessarily the enemy. For investors with a repeatable process and a strong focus on risk management, volatility can be navigated rather than feared. Periods of heightened uncertainty often lead markets to overshoot, creating disconnects between price and fundamentals. For disciplined investors, those anchored in bottom up analysis, position sizing and balance sheet resilience, these moments can provide attractive entry points. In that sense, volatility, when managed thoughtfully, can be a source of opportunity rather than a reason to stay away.

The AB view

Historical patterns show that episodes of extreme market fear—signalled by very high month‑end VIX readings—have often been followed by strong emerging‑market equity gains. In past instances when the VIX exceeded 40 or even surpassed 50, emerging‑market equities delivered notably higher 12‑month returns than developed markets, reflecting how severe stress events frequently mark points of maximum pessimism. As conditions subsequently unfolded less negatively than feared, these markets tended to rebound sharply.

Investment Solutions

Diverse Access to Areas of Opportunity

Whether you are looking for broad emerging-market exposure or a more focused allocation, our fund range provides access to a wide variety of investment opportunities across equity, debt and currencies.

Emerging Markets Equities
Emerging Markets Fixed-Income
Emerging Markets Multi Asset

Emerging market equities offer investors opportunities for long-term returns at what we believe are attractive valuations relative to developed markets. Our range of solutions aims to invest in quality companies that in our view are best positioned to harness the undervalued growth inherent within emerging markets.

Our emerging market fixed-income strategies provide investors access to the full spectrum of opportunities within the asset class, including hard and local currency, sovereign and corporate. This diversified range of solutions offer the potential for strong returns from a combination of price appreciation and income.

AB Emerging Markets Debt Portfolio

Taking a multi-asset approach to emerging market investing unlocks a broader set of potential opportunities. Our solution offers clients growth and income, while managing risk through diversification and tactical asset allocation.

AB Emerging Markets Multi-Asset Portfolio

The value of an investment can go down as well as up and investors may not get back the full amount they invested. Capital is at risk. There can be no assurance that any investment objectives will be achieved.

This is a marketing communication. This information is provided by AllianceBernstein (Luxembourg) S.à r.l. Société à responsabilité limitée, R.C.S. Luxembourg B 34 305, 2-4, rue Eugène Ruppert, L-2453 Luxembourg. Authorised in Luxembourg and regulated by the Commission de Surveillance du Secteur Financier (CSSF). It is provided for informational purposes only and does not constitute investment advice or an invitation to purchase any security or other investment. The views and opinions expressed are based on our internal forecasts and should not be relied upon as an indication of future market performance. The value of investments in any of the Funds can go down as well as up and investors may not get back the full amount invested. Past performance does not guarantee future results.

This information is directed at Professional Clients only and is not intended for public use.