Navigating the Currents: Nomura's Perspective on Emerging Markets in Q1 2026

You know, navigating the dynamic landscape of emerging markets is always a fascinating, if sometimes wild, journey. The first quarter of 2026 certainly presented its own unique set of twists and turns, demanding both vigilance and a disciplined approach. For the Nomura Emerging Markets Fund, it was a period of thoughtful positioning and adapting to swiftly evolving global narratives, all while keeping our eyes firmly fixed on long-term value creation.

Looking back at Q1, our fund delivered a respectable performance, returning an estimated +2.8% net of fees. While this lagged slightly behind the broader MSCI Emerging Markets Index, which gained roughly +3.5% over the same period, we feel our deliberate sector and country allocations helped mitigate some of the market's more speculative swings. Naturally, no fund hits a home run every single quarter, and we're always scrutinizing where we could have done better, believe me.

The market backdrop for emerging economies during Q1 was, shall we say, a mixed bag. We saw persistent, albeit moderating, inflation concerns globally, keeping central banks, particularly the Fed, in a cautious holding pattern regarding rate cuts. This created a degree of uncertainty for risk assets. Geopolitically, there were ongoing tensions that, as you might imagine, fueled some regional divergences. India, for instance, continued its impressive growth trajectory, buoyed by robust domestic consumption and a burgeoning manufacturing sector, which certainly favored some of our holdings there. On the flip side, China's recovery, while showing some targeted improvements, continued to grapple with lingering property sector concerns, impacting investor sentiment towards the broader Greater China region.

So, what really drove our performance, both good and bad? On the positive side, our overweight positions in select Indian financials and high-quality technology firms in Southeast Asia really shined. These companies, many with strong balance sheets and clear competitive advantages, were able to weather the global headwinds remarkably well. We also saw some solid contributions from commodity-linked exporters in Latin America, benefiting from a surprisingly resilient demand environment for raw materials. It's a testament to thorough fundamental analysis, really.

However, not every bet paid off as handsomely. Our underweight stance in certain segments of the Taiwanese semiconductor industry, which experienced a stronger-than-anticipated rally late in the quarter, meant we missed out on some upside. And, candidly, a couple of specific stock selections within the consumer discretionary sector in South Africa didn't quite deliver the expected results, forcing us to re-evaluate those positions. Lessons learned, as they say, are invaluable.

As the quarter progressed, we made some considered adjustments to the portfolio. We selectively trimmed some of our stronger performing Indian holdings to lock in profits and manage concentration risk. We also took the opportunity to initiate new positions in a couple of innovative healthcare companies in Brazil, where we see compelling long-term demographic tailwinds, and added to an existing holding in a renewable energy infrastructure firm in Vietnam. These moves reflect our ongoing commitment to finding quality growth at reasonable valuations.

Looking ahead, the crystal ball is never perfectly clear, is it? But our outlook for the remainder of 2026 remains one of cautious optimism. We anticipate continued divergence across emerging markets, emphasizing the critical importance of bottom-up stock selection. We're keeping a very close eye on the global interest rate environment, obviously, and how potential Fed actions might influence capital flows into EM. Furthermore, themes like the energy transition, digitalization, and the rising middle class in various emerging economies continue to present incredibly compelling investment opportunities.

Ultimately, our conviction in the long-term growth story of emerging markets remains unwavering. While volatility is an inherent characteristic, the sheer demographic dividend, technological adoption, and structural reforms in many of these nations present an attractive backdrop for patient, discerning investors. We believe our disciplined, research-driven approach is well-suited to uncover those hidden gems, navigating the complexities to deliver sustainable long-term returns for our shareholders. We're certainly ready for whatever the next quarter brings!