JPMorgan's global markets strategy team issued a strategy report on emerging market (EM) equities on November 11, titled with a question: "When We Talk About 'Broadening', What Are We Talking About".

The answer comes in three layers: changes in the US political landscape (a Democratic sweep in the midterm elections) have cleared away the geopolitical risk premium weighing on EM; three mutually reinforcing tailwinds — falling oil prices, declining bond yields, and a weaker or stable dollar — have opened up simultaneously; and the true meaning of "broadening" is that the rally is spreading from a handful of AI heavyweight stocks to the non-tech portion of EM.

What exactly is broadening?

The report defines the problem using three charts. The first chart shows EM's year-to-date return contribution is highly concentrated in the top five individual stocks — the index is rising, but only a few names are driving it. The second chart shows MSCI EM excluding IT has delivered fairly flat year-to-date performance. The third chart tracks the MSCI EM Equal Weighted Index relative to MSCI EM, which the report calls "this year's second broadening trade".

Connecting the three charts makes the logic clear: 2026's EM has been a narrow rally driven by AI hardware, with Taiwan, South Korea, and mainland China IT carrying the index; once the AI trade wobbles, the index will fall, but equal-weighted and small-cap names may actually outperform. This is the first layer of "broadening" — it is not that EM as a whole rises more, but that gains spread from a few names to the rest of the market.

The second layer lies in the valuation table. The report provides two sets of figures: EM ex-IT earnings growth is projected at 24% and 11% for 2026 and 2027, versus 23% and 6.5% for developed markets ex-IT; yet EM ex-IT's 12-month forward P/E is only 10.5x, roughly one standard deviation below the historical average of 11.3x. The earnings gap has already reversed, while the valuation gap remains in place.

Tailwind One: Oil — Valid and Verifiable

This is the only one of the three tailwinds that has been fully confirmed in the data. In late October, Brent crude briefly surged to about $118 per barrel on concerns that the US would escalate military action against Iran after the midterm elections. After the Democrats won both chambers, the geopolitical premium began to unwind: on November 9, Brent fell 5.85% in a single day to $92.57, then dropped another 1.2% on November 10 to close at $91.49, at one point breaking below $90 to about $89.95 — the lowest since August 31; WTI closed at $86.04.

The supply side is also cooperating. Surveys show OPEC production rose by about 1.38 million barrels per day in October to 22.87 million barrels per day, with Saudi Arabia, Kuwait, and Iraq all raising output in tandem; JPMorgan's own commodities team estimates that global oil supply exceeded consumption by about 1.4 million barrels per day in October, up from 1.1 million barrels per day in September — these are the exact figures cited in the report. On the demand side, the picture is reversed: the US Energy Information Administration expects global oil consumption to fall from a record 104.4 million barrels per day in 2025 to 102.4 million barrels per day in 2026.

The report derives the transmission chain: lower oil prices → lower imported inflation → reduced pressure on policy rates → eased currency pressure in importing nations → improved earnings in consumer, retail, auto, and financial sectors of oil-importing markets. The report names India, South Africa, China, and South Korea as beneficiaries. The report also acknowledges that this chain is not one-directional: it is a net negative for oil-exporting markets such as Latin America; however, it adds that oil exporters are also concerned about inflation and high interest rates, so falling oil prices may not be entirely bad for them. Another variable written into the report is El Niño: the report describes it as unprecedented in intensity, with effects manifesting 3 to 5 quarters after the peak, with Southeast Asia and Latin America exposed.

Tailwind Two: Bond Yields — But It Appears to Have Been Overturned on the Day the Report Was Finalized

The report states: after the Democratic sweep and the sharp oil price decline, US long-end yields fell to multi-week lows, with UK and German long-end yields also declining in tandem last Thursday; the bond market is pricing in "a divided Congress bringing fiscal restraint and accelerating the end of Middle East tensions"; a divided Congress reduces the likelihood of large-scale tax cuts and heavy spending programs, and also provides more oversight on debt ceiling discussions. The conclusion is that lower yields boost risk appetite, and EM equities could resume inflows.

This passage was correct at the time it was written, but after October CPI came out, the market switched to a different pricing regime: the 10-year yield rose about 8 to 14 basis points in a single day, briefly touching 5.025%; the 2-year rose 17 to 20 basis points to 4.74%–4.755%; the 30-year climbed to 5.357%. CME data shows the probability of a 25 basis point rate hike in December at 84.2%, with the probability of a 50 basis point hike rising from about 1% to 11.8%–13.6%. Fed Governor Waller expressed support for a December hike before the data was released, saying that if core CPI comes in at 0.3% or above, "a 50 basis point hike should be considered"; Dallas Fed President Logan said at least two more 25 basis point hikes are needed. The current environment is a hiking cycle, not a cutting cycle.

The report frames the risk to this tailwind as "the Fed hiking more than the market currently prices" — its concern is not that rate cuts are too slow, but that hikes exceed expectations. And the 10-year yield is now sitting right at the line the report set: the report says "a 10-year yield below 5% could serve as a pressure release valve", and on November 10 it touched 5.025%, closing near 5%.

Tailwind Three: The Dollar — An Option, Not a Base Case

The report treats the dollar with far more caution than the first two tailwinds, and this deserves separate mention. Its argument is based on historical statistics: over the past 20 years, in periods when the broad nominal dollar depreciated by more than 5%, every 1% weakening in the dollar corresponded to a median gain of 3.4% in MSCI EM (USD-denominated); during these periods, EM was the best-performing region globally; Peru, Brazil, Turkey, Hungary, the Czech Republic, Indonesia, and South Africa — mostly twin-deficit economies — posted median gains exceeding 25%; by sector, materials, industrials, financials, consumer discretionary, and real estate outperformed.

The bank's view is that even a stable or only mildly weakening dollar would be sufficient to drive EM, especially when EM fundamentals are improving. What the FX strategy team did this week was reduce overall FX exposure — trimming some dollar longs as well as cyclical FX — on the rationale that the AI-led equity selloff after the midterm elections is challenging the pillars of "American exceptionalism", and that in coming days exchange rates will follow equities rather than activity data.

So the true weight of the three tailwinds is: one already realized (oil), one overturned by same-day data (yields), and one that is an option rather than a base case (the dollar). The report lists them as "three mutually reinforcing" tailwinds — a characterization stronger than the actual evidence supports.

What Support Remains for "Broadening"?

The remaining two supports are not at the macro level. The first is fund flows. The report notes that in the two months before the Middle East conflict erupted (January–February 2026), foreign subscriptions to EM equity funds were at historic highs, and they have begun to recover in recent weeks. India is a verifiable example: after foreign institutional investors (FIIs) experienced unprecedented selling during the year, about $7.5 billion has flowed back since mid-October.

The second is the return of active management. The logic: as the market becomes more discerning, active managers can avoid overvalued sectors and concentration risk, targeting sustained growth areas to generate alpha, thereby attracting more active allocations. This is more of an inference than evidence — the support is merely a chart of EM active funds' 12-month performance relative to MSCI EM, with no forward-looking flow forecasts.

Four Markets, Four Sets of Logic

The report's "market implications" section unfolds by region, with four independent sets of logic. China: potentially benefiting from short covering and capital rotation — Chinese equities had previously been used as a source of short funding for long AI positions. The report argues that Chinese equities offer diversification from the global AI trade, and that China's AI localization has its own trajectory and may be less dependent on US AI capital expenditure. Its China strategy team sees 10%–15% further upside as valuations recover from trough levels, with additional policy stimulus potentially extending the rally.

India: risk appetite gradually improving. October performance recovered, driven by relative defensiveness against the global AI selloff and better-than-expected third-quarter earnings. With crude oil import dependence at about 85%–90%, Middle East peace is a substantial tailwind — smaller import bills, a more stable rupee, lower inflation, and thicker margins.

South Africa: the report's top pick in CEEMEA, maintaining overweight throughout the conflict. Two comparisons: South Africa and Brazil are both commodity exporters with high FX beta and similar MSCI EM weights (about 3%–4%); South Africa's bond yields have fallen about 350 basis points since the June 2024 national election, yet its equity market has not meaningfully re-rated. Recent local elections improved the prospects of the governing coalition (DA); by sector, it prefers banks and gold stocks.

Mexico: the report sees it as one of the biggest global beneficiaries of a US "blue sweep" — potentially more moderate tariffs and more substantive USMCA negotiations. The peso has already depreciated more than 10% in two months, and the central bank has ended its easing cycle, raising the bar for further depreciation; foreign allocations are very low, making it an alternative for Latin American "broadening" (given Brazil's macro-political debate).

AI: Still Bullish, But Acknowledging a "Mid-Cycle Reset"

The report has not abandoned AI. It offers three fundamental reasons worth recording in full: unit economics, scaling laws, and token demand growth all remain strong; even in a double-digit growth environment, valuations have corrected to levels implying "earnings are about to be downgraded", which it considers unlikely; and typical cycle-top signals such as inventory buildup, shortening lead times, and rapid capacity expansion are largely absent. On this basis, it characterizes the current pullback as "a mid-cycle reset and another deleveraging event within the AI super-cycle", more optimistic than the market's "end-of-cycle" pricing.

The risk lies in market观望 — wait-and-see sentiment. The new variable introduced by the midterm elections is the policy overhang on data center construction: a blue sweep could constrain the upward path of capital expenditure, but the bank's US strategy team believes the construction trajectory remains intact, with the key risk being delay rather than cancellation, and with a shift in focus toward more supportive jurisdictions.

The Bottom Line: The Numerator Is EM's Own Business, but the Denominator Is Still in Someone Else's Hands

Having dissected this report, its real contribution is not the "three tailwinds" formulation, but turning "broadening" from a narrative into a testable arithmetic problem: EM ex-IT earnings growth has already overtaken developed markets ex-IT, yet valuations remain one standard deviation below the historical average. This point does not depend on elections, oil prices, or the dollar — it is the only argument that stands independently under any macro scenario.

But it simultaneously exposes its own vulnerability: the numerator of this arithmetic problem (earnings) is EM's own business, while the denominator (discount rate) is in the Fed's hands. The threshold the report itself set is "10-year yield below 5%", and on November 10 that threshold was touched; the risk it itself listed is "the Fed hiking more than the market prices", and the market's pricing that day had just shifted from "whether to hike" to "how much to hike".

So what really needs watching is not EM's earnings table, but the December FOMC meeting. If the hike lands and the long end holds below 5%, "broadening" has the denominator it needs; if 50 basis points becomes reality and the 10-year moves above 5%, then the modest tailwind from oil will roughly only offset the rise in financing costs — the report's first tailwind and second headwind will cancel each other out, leaving only the valuation discount as the sole remaining leg.