Emerging markets delivered 43% in FY26: How ClearBridge played it and where it's looking next

It has long been one area of the global equities market widely ignored by Australian investors. But if the opportunity in emerging markets had remained off your radar previously, the last 12 months should have put paid to that. 

The MSCI Emerging Markets Index (USD) returned 43.51% in FY26 and 23.85% in the first half of 2026, and the sector was home to some of the world's best-performing stocks like SK hynix, which returned 828% in FY26. 

ClearBridge Investments was one investment manager that has managed to seize the initiative in what remains a dynamic part of the global market. The ClearBridge Emerging Markets Fund returned 43.15% over the 12 months to 30 June, putting it amongst the top-performing global equities funds for FY26. 

Here, Andrew Mathewson, Portfolio Manager for the ClearBridge Emerging Markets strategy, explains what worked for it in FY26 and where it's seeing opportunities in the year ahead. 

Where the opportunities have been 

Unsurprisingly, Mathewson says much of the fund's performance can be attributed to the phenomenal performance seen across AI semiconductor and infrastructure names in Asia. 

"We have been well positioned over the last 12 months in areas where the AI infrastructure buildout has driven very strong earnings results and share price returns," he said. "This has included our semiconductor, related technology and industrial holdings in South Korea, where we tend have greater exposure than our peers, and Taiwan."

Key performers have included the obvious names, as well as a handful of others that may have escaped the attention of the wider market. 

"South Korean memory companies SK Hynix (KRX: 000660) and Samsung Electronics (KRX: 005930) have benefited from an advantageous market for DRAM and NAND, and in particular high-bandwidth memory needed for AI workloads, as supply constraints amid high AI demand have supported higher prices," said Mathewson. 

"Taiwan system-on-a-chip maker MediaTek (TPE: 2454) has seen strong uptake for its new AI accelerator chips while Taiwan Semiconductor (TPE: 2330) has been supported by pricing power and a healthy backlog due to its position as the dominant foundry for leading edge chips."

Elsewhere, companies exposed to the energy demand aspect of the AI buildout have also excelled. This includes Delta Electronics (TPE: 2308), a Taiwan-based supplier of power and thermal management products for data centres, and Sieyuan Electric (SHE: 002028), a Chinese manufacturer of high voltage electrical equipment.

"Delta has broad global exposure with around 40% of its business in the Americas and is well-positioned as an approved supplier for GPU leader Nvidia. Sieyuan, meanwhile, provides the electrical equipment to support data centres power needs."

Outside of the AI and semiconductor trade, China and another emerging markets thematic also played a significant role in ClearBridge's performance. 

"Strong stock selection in China was another driver of outperformance, led by holdings including Contemporary Amperex Technology (SHE: 300750), a leading battery supplier which was lifted by strong electric vehicle and energy storage system demand. EV growth has reaccelerated in Europe and CATL has taken market share, while EV penetration continues to increase in China."

Where they could be now 

Mathewson has identified three key EM sectors where ClearBridge expects continued strength. 

"While performance in EM has been relatively concentrated in recent months, we continue to see long-term positive drivers from several areas, in particular: China, India and IT," he said. "In China, we see a stabilisation in macro conditions combined with market valuations that are still relatively cheap on a global basis."

Given how far it has run, there are understandable concerns over whether there's any more upside in the semiconductor and AI hardware trade. But Mathewson believes the sector should continue to perform. 

"We remain positive on the outlook for the IT hardware sector as we continue to see a supportive combination of growing global demand and constrained supply," he said. 

"For example, the memory market is not expected to approach supply/demand equilibrium until the at least late 2027, which should enable memory makers to maintain pricing power and profitability."

Despite the impressive returns, many of EM's biggest performers are still trading at reasonable valuations as earnings continue to surprise to the upside. 

"Technology strength has been earnings-driven, which has kept valuations in check, with memory names such as SK Hynix and Samsung Electronics trading at multiples well below emerging markets overall."

ClearBridge is also overweight India, an EM region where performance has lagged other tech-heavy Asian markets. 

"India stocks significantly outperformed between 2021 and 2024, driven by rapid economic growth and structural reforms," said Mathewson. "2025 provided a healthy valuation correction, bringing equity multiples back to long-term average levels and creating what we view as a more attractive environment for potential investment upside."

Coupled with a number of structural tailwinds, the country now presents an opportunity for growth. 

"India remains underpinned by favourable demographics and rising domestic consumption while the government continues to implement a steady program of business-friendly structural reforms that we believe should support business returns."

"While the market has underperformed EM recently, we see long-term opportunities in high-quality, domestic-focused companies that the market has overlooked."

Despite the opportunities that have presented themselves over the years, investors have rightfully been wary of emerging markets as shaky valuations, macro factors and jurisdiction risk have kept many on the sidelines. 

But as we enter a new paradigm for emerging markets, outsized demand, structural tailwinds and undeniable earnings growth make the opportunity a lot more compelling.