On screen copy:
Chris Hyzy
Chief Investment Officer
Merrill and Bank of America Private Bank
On screen copy:
Please read important information at the end of this program. Recorded on 1/22/2026.
[Chris Hyzy faces the camera and speaks directly to the audience. The shot then pans to a conversational discussion between Chris and Lauren Sanfilippo.]
Chris Hyzy
Hi, I'm Chris Hyzy, chief investment officer for Merrill and Bank of America private bank. Today, we're looking at one of the most notable shifts in our outlook for 2026.
On screen graphic:
Emerging markets showing momentum:
Strong 2025 performance
Broadening global expansion
Apparently overvalued dollar
Which is a more positive stance on emerging markets, a strong 2025 performance, a broadening global expansion, and a dollar that appears overvalued are contributing to this shift, along with tailwinds including potential lower interest rates and easing of oil prices. With capital rotating back into emerging assets, now is potentially a pivotal time to assess EM in your portfolio. What's behind these trends and what do they mean for investors?
On screen copy:
Lauren Sanfilippo
Senior investment strategist
Chief Investment Officer
Merrill and Bank of America Private Bank
Joining me now is senior investment strategist Lauren Sanfilippo to break it all down. Lauren, welcome.
Lauren Sanfilippo
Hi, Chris.
Chris Hyzy
We're going to start at the top. We have this concept called what's rare this year. What's rare in terms of growth around the world. Whether it's the US potentially above 5% nominal growth around the world collectively 6% at a time where short interest rates in the states are coming down. Typically, when you see geopolitical activity rise, you get a stronger dollar, not a weaker dollar like we've seen recently. There's a lot of rarities out there. Let's start with the emerging markets and let's go into what is different with the emerging markets within the context of what just happened in 2025.
On screen copy:
Emerging markets returned 34% in 2025, outperforming the S&P 500 by 16 points.
Source: Bloomberg data from MSCI Emerging Markets and S&P 500 Indexes.
Past performance is no guarantee of future results.
Lauren Sanfilippo
What's rare is that the emerging markets actually outperformed almost put up double the performance that the US did last year. And so in that sense, we're coming into the year already with markets a little bit hot. And so I think the set up is a little bit rare this year. It's just a story of chronic underperformance from the emerging markets. But a lot of the forces now have aligned. Whereas global growth, is narrowing. The divergence is narrowing between the rest of the world and the U.S., that's one.
On screen copy:
Global growth expected to reach 3.4% in 2026.
Source: IMF World Economic Outlook Update, January 2026
Earnings momentum looks good for emerging markets. And we have global trade that's reaccelerating. So there's a lot of good things that are happening that are rare in a sense for emerging markets.
Chris Hyzy
When bucket the emerging markets all together, we can't look away from the fact that overwhelmingly large part of the index is China. We'll get there in just one second. But when we put all of the emerging nations together as an asset class, what type of earnings growth are we expecting? Is it above what the US can potentially create for all of 26?
Lauren Sanfilippo
Yeah. You know it's roughly in line with the US but just different factors right. So whereas in the US we're looking at earnings that instead of it just being powered by seven tech companies, hyperscalers overwhelmingly their earnings growth is decelerating. And we're seeing the broadening from the 493 come up behind that tech sort of earnings outperformance that we've seen in recent years. Now for EM the story is a little bit different right. And some of those earnings trends just look really good. You're looking at for example the tech-oriented economies in markets, right, that we think are very compelling opportunities in 2026.
Chris Hyzy
Let's talk about China. A few years ago, China technology segment of China itself kind of went to the wayside a little bit. We didn't really talk about it, even though they were building this so-called dominance or at least race for dominance against the US. And then all of a sudden, they're supportive. There's particular government expenditures that are supportive of China technology in general. But also we're starting to hear about other stimulus with the consumer. Is that a contributing factor to being overweight the emerging markets?
On screen copy:
China represents 27% of the MSCI Emerging Market Index.
Source: Factset, as of 1/22/2026
Lauren Sanfilippo
There's a lot going right in China now where that that wind is really changed. Right. And it's 27% of the EM index. And so this is a weight that matters. It's a little bit similar in, in Latin America, actually. Different EM here in the sense that Mexico takes up a lot of that index. And so concentration is a risk.
Chris Hyzy
You talked about earnings growth. We talk about valuation in the United States of being at a premium. What's the valuation like collectively in the emerging markets.
On screen copy:
Emerging market equities offer attractive valuation multiples vs. U.S.
Lauren Sanfilippo
Yeah. So actually valuation is a compelling opportunity in emerging markets. And you know where there's been concerns over AI. Maybe these valuations got a little bit lofty for some investors here in the US. You can actually look for those opportunities abroad at valuations that could be more attractive right. So I'm talking about tech oriented markets such as Korea, Taiwan even China. And so that's what we're looking at for this year.
Chris Hyzy
There's been a lot of changes politically in the emerging markets over the years. It seems to be relatively calm right now. When we think about an active way to think about the emerging markets, is geopolitical risk still one of the bigger risks out there as it relates to the direction of asset prices?
Lauren Sanfilippo
Geopolitical risks are very much so part of the equation this year. We've seen what's gone on just year to date, right? In the few trading weeks that we've had.
Chris Hyzy
Feels like a half a year already.
On screen copy:
Supreme Court ruling on Trump administration tariffs could affect EM outlook.
Lauren Sanfilippo
For sure. And in front of us is still the IEEPA Supreme Court ruling the emergency powers over the tariffs. So trade and tariff frictions very much part of the story this year still. Right. That unfortunately didn't go away with 2025.
On screen copy:
Dollar-based investors are significantly underweight in emerging markets assets.
Chris Hyzy
One of the great benefits, at least right now, could potentially be the fact that dollar based investors are significantly underweight, emerging assets in general, emerging equity assets partially on the debt side as well. And with money flow, what other drivers are you thinking about with reallocation?
Lauren Sanfilippo
The dollar we see is still weakening this year right. Nothing like the 7% on a trade weighted basis dollar decline we saw last year, which primarily took place in the first half of the year. We foresee for this year still a softening in the US dollar. And so that would be a contributor and accretive to emerging markets.
Chris Hyzy
That's a very good point, because if you get the weaker dollar you get earnings growth, you get global growth going up. What tends to follow is natural resource prices also rallying, which we have seen in some cases not just precious metals but base metals and other parts of the natural resource spectrum is that is what is expected as well in 26.
Lauren Sanfilippo
Yeah. And I think you could also see like some of the industrial uses for some of those metals. Right. That's actually an attractive investment opportunity I think for us this year, particularly looking at Latam, just as a region that would probably benefit from that.
Chris Hyzy
Lauren we talked about earnings growth and valuation. Some other factors. Years ago for many decades frankly there was a high correlation to rising oil prices with enthusiasm, particularly as relates to Latin America within emerging markets. Do oil price direction matter just as much today as it did in the past. Or is there a different approach.
Lauren Sanfilippo
Different in the sense that China's growth model has changed a little bit, where it felt like in years prior is more like boom bust. Depending on what's happening in the commodity landscape, sort of what's happening in China, right. And vice versa. Now it's a lot different in the sense that China has actually tried to become more consumption based. Right. And so they're moving towards us. It's happening slowly. I mean, it did print on 1.2 trillion dollar trade surplus last year. And so they're still very much export oriented, but they are moving towards a more consumption based model.
Chris Hyzy
So an overall more diversified approach as to what is driving the enthusiasm over the emerging market landscape.
Lauren Sanfilippo
That's right.
Chris Hyzy
What are we missing? We talked about geopolitical risks. Is there anything else top of mind that you might be guarded about for us to watch for as it relates to emerging markets in general?
On screen copy:
Potential emerging markets downside scenario: global growth scare.
Lauren Sanfilippo
Yeah, I mean, maybe a global growth scare. It's all these things that we would probably factor in that just aren't right now factored into our models and assumptions. Right. So there are certainly things that could take place. But the overarching idea is that in Em would be sort of like any allocation would be a sleeve in the portfolio, right? In the sense that while this has been a great conversation about emerging markets, we have that US bias. And that's the core of the portfolio. So this would just be a little bit of a bolt on. Right. The diversified sort of aspects to a portfolio.
Chris Hyzy
Something that a dollar-based investor hadn't had to think about for a very long period of time.
Lauren Sanfilippo
Or wasn't able to.
Chris Hyzy
Great point. Lauren, I want to thank you for joining me today.
Lauren Sanfilippo
Thank you so much.
[The shot transitions back to just Chris on camera speaking directly to the audience.]
Chris Hyzy
Emerging markets are clearly an important part to consider for a balanced portfolio in 2026 and beyond. Alongside other shifts in asset classes and sector positioning. For guidance tailored to your long term goals, connect with your advisor, if you work with one, in order to see how these trends could work for you. I'm Chris Hyzy, thanks for watching and we'll see you next time.
On screen disclosures:
Important disclosures
The opinions expressed are as of 1/22/2026 and are subject to change.
Investing involves risk. Past performance is no guarantee of future results.
Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.
Investments have varying degrees of risk. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investments in emerging- and frontier-markets securities may be subject to greater market, credit, currency, liquidity, legal, political and other risks compared with assets invested in developed foreign countries.
This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.
The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
Merrill makes available certain investment products sponsored, managed, distributed or provided by companies that are affiliates of BofA Corp. MLPF&S is a registered broker-dealer, registered investment adviser, Member SIPC and a wholly owned subsidiary of BofA Corp.
Merrill Private Wealth Management is a division of MLPF&S that offers a broad array of personalized wealth management products and services. Both brokerage and investment advisory services are offered by the Private Wealth Advisors through MLPF&S. The nature and degree of advice and assistance provided, the fees charged, and client rights and Merrill's obligations will differ among these services. The banking, credit and trust services sold by the Private Wealth Advisors are offered by licensed banks and trust companies, including Bank of America, N.A., Member FDIC, and other affiliated banks.
Bank of America Private Bank is a division of Bank of America, N.A., Member FDIC and a wholly owned subsidiary of BofA Corp. Trust and fiduciary services are provided by wholly owned banking affiliates of BofA Corp., including Bank of America, N.A.
Investment products:
| Are Not FDIC Insured |
Are Not Bank Guaranteed |
May Lose Value |
© 2026 Bank of America Corporation. All rights reserved. 8734056 - 01/2026
[End of transcript]
Last year, emerging market equities outperformed U.S. equities,Footnote 1 and that trend appears primed to potentially continue in 2026. Even as tensions continue to churn on the world stage, the outlook for 2026 is positive for the asset class, according to the Chief Investment Office (CIO). "Typically, when you see geopolitical activity rise, you get a stronger dollar, not a weaker dollar like we've seen recently," says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. "But a weaker dollar benefits emerging markets."
In the video above, Hyzy and senior investment strategist Lauren Sanfilippo share the reasons behind the CIO's upbeat view on emerging markets and discuss factors to consider before adjusting your allocation. They also highlight other market trends that could pose risks and potential opportunities for investors in 2026.