UBS Says Emerging Markets Can Absorb Hawkish Fed, Sees EM Earnings Up Over 60% in 2026

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UBS analysts said emerging market assets can withstand a more hawkish U.S. Federal Reserve, arguing that stronger economic fundamentals and resilient global growth have reduced their vulnerability to tighter U.S. monetary policy. The Fed raised interest rates by 25 basis points at its September meeting, its first hike since 2023, while signalling that rates could remain above 4% through 2027. Markets were already pricing roughly three further hikes by mid-2027, UBS said, raising the bar for the central bank to deliver an even more hawkish surprise, and UBS itself expects only one additional 25-basis-point increase. The bank pointed to stronger external balances, improving sovereign credit quality and greater scope for emerging-market central banks to set policy independently of the Fed, and said the U.S. dollar's role as a shock amplifier for emerging markets has diminished. On equities, UBS expects EM earnings per share to rise more than 60% in 2026 and nearly 20% in 2027, while the MSCI Emerging Markets index trades at about 10 times forward earnings, and it flagged rapid increases in U.S. Treasury yields, weaker global growth and geopolitical escalation as key risks.

Impact on assets 6

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UBS Group AG
UBSG
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UBS is the author of the EM outlook, but the article reports no company-specific financial event for UBS itself.

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