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Macro Notes - Are EM Equities Still Attractive at Elevated P/E?

January 22, 2026
Mehta Saakshi Headshot

Saakshi Mehta

Vice President, ETF & Alternatives Strategy

Yes, emerging markets (EMs) remain attractive despite elevated P/​Es. While absolute EM P/E appears elevated versus history, they remain discounted to developed markets (DMs). More importantly, today’s multiples are anchored to a fundamentally stronger growth backdrop. According to IMF, expected EM GDP growth (4.0%) outpaces expected DM GDP growth (1.6%) by nearly 3% in 2026 and consensus forward earnings growth runs 1.4x faster. 

Elevated P/​Es also do not mechanically translate into weak forward returns. High P/E regimes have still delivered positive returns when earnings growth accelerated (Chart 1). EM’s higher valuations today are also supported by a compositional shift toward higher-growth, higher-margin sectors with better earnings visibility, particularly in semiconductors, AI infrastructure and advanced manufacturing (Chart 2).

Against this backdrop, we continue to stay long ZEM, as the combination of supportive macro growth, improving earnings momentum, and a higher quality sector composition keeps EM equities attractive even at higher P/E multiples.

Chart 1: MSCI Emerging Markets Index and P/E Ratio Relationship 
Data starting in 2018
Source: Bloomberg, BMO GAM
Chart 2: EM Sector Composition Reflects a Higher‑Quality Mix (as of Dec 31, 2025)
Source: Bloomberg, BMO GAM

Chart 3: EM Earnings Momentum Outpaces Global Peers

Source: Bloomberg, BMO GAM

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