Citi’s 2026 emerging-market equity strategy favors AI-linked markets

Why Citi is constructive on emerging markets

Citi’s EM case rests on three main pillars.

First, the earnings setup looks stronger than in other major regions. In Citi Research’s view, EM is expected to deliver the strongest earnings growth of any major region in 2026, with consensus EPS growth around 17% ^[15].

Second, the macro backdrop could help. Citi cites expected Fed rate cuts and a global soft-landing backdrop as supportive for EM equities, a combination that has historically been favorable for the asset class ^[15]. Citi’s broader 2026 macro commentary also describes a constructive environment in which corporate profitability and global growth are supported by favorable monetary and fiscal policy ^[20].

Third, AI is now part of the EM equity story. Citi’s official key takeaways for China and India equities specifically list attractive AI-stock valuations as one driver of the constructive global EM outlook ^[21]. Citi Wealth also highlights technology as a core long-term holding and points to opportunities in AI infrastructure ^[20].

Where the country tilt appears strongest

How AI and semiconductors fit the strategy

The AI link matters because EM technology exposure has already shown meaningful sensitivity to the theme. Citi’s EM Equity Strategy Compass noted that EM Tech had risen about 50% since President Trump’s initial tariff pause, helped by relatively benign tariff outcomes and renewed confidence in AI ^[14]. Citi also observed that the AI theme had reasserted itself through sharp outperformance in global technology stocks ^[14].

Semiconductors sit at the center of that equity story. Third-party coverage of Citi’s 2026 playbook describes semiconductors as a preferred growth sector, supported by AI infrastructure demand and positive earnings revisions ^[6]. Separate Citi-linked semiconductor coverage says the bank expected the AI supercycle to continue through 2026, while warning that the risk-reward balance was becoming less favorable ^[4]. Citi’s Asia commentary also highlights Taiwan’s central role in the AI revolution because it manufactures critical components for the technology ^[26].

For EM investors, the implication is straightforward: the AI trade is not only a U.S. mega-cap story. It also flows through Asian technology hardware, semiconductor supply chains, and country-level earnings revisions.

The main risks to watch

The biggest risk is that valuation gains outrun earnings. Citi’s Global Equity Quarterly says its main worry is that stretched valuations could cap future upside if EPS fails to deliver ^[22]. That warning is especially relevant for AI-linked markets, where expectations are high and volatility can rise quickly.

Country-specific risks also matter. Citi flags China’s property-market outlook and aging population as challenges even as policy support for tech self-reliance and exports remains a potential tailwind ^[21]. For India, the neutral stance reported by market sources reflects concern that the growth story is already priced in, along with currency risks ^[7][8].

Bottom line

Citi’s 2026 EM equity play is a selective overweight built around earnings growth, expected Fed easing, and AI-linked technology exposure. The cleanest reported expression is China and South Korea, while India is treated more cautiously. The strategy works if EM EPS growth materializes and AI semiconductor demand keeps supporting earnings revisions; it becomes more vulnerable if valuations stretch further or earnings disappoint ^[15][22].

Citi's Bold EM Bet: India Rated Neutral as AI Growth Fuels Global Strategy Shift! ... Citi strategists are overweight on Emerging Markets, particularly China and South Korea, driven by AI growth and reasonable valuations, while maintaining a neutral stance...