J.P. Morgan: AI monetization concerns hit emerging markets as stocks fall 8.1% in October

Why did emerging markets fall much more than developed markets?

In October 2026, the MSCI Emerging Markets Index fell 8.1%, its worst monthly performance since March of that year and its worst October since 2018; over the same period, the S&P 500 fell 0.9% and the MSCI Developed Markets Index fell 0.8%.
Emerging-market information technology and industrials both fell 12.4% during the month. At the end of October, information technology accounted for 41.8% of the MSCI Emerging Markets Index, so the sector’s decline had a substantial impact on the overall index.
JPMorgan believes earnings season exposed AI monetization risks, particularly those facing large cloud providers with negative free cash flow; the subsequent loss of confidence spread to emerging-market technology stocks. The capital expenditure trend for 2027 remains positive, but it failed to prevent the sell-off.

Major memory manufacturers reported strong execution in their high-bandwidth memory businesses and expect higher memory output and capital expenditure; tight capacity also supports their positive outlook for the memory market.
But the MSCI Korea Index fell 15.4% in US dollar terms in October, while foreign investors sold a net 15 billion US dollars of Korean equities during the month, marking six consecutive months of selling. JPMorgan said the end of memory-stock buybacks and weak retail investor sentiment left buying demand insufficient.
Consensus earnings per share estimates for Korea for 2026 and 2027 were both revised upward by 1.7% in October. Revisions remained positive but slowed from the cumulative 11.9% and 12.3% increases over the previous three months; Taiwan’s estimates for the two years were revised upward by 0.5% and 1.9%, respectively, during the month.

The MSCI Mexico and India indices rose 4.4% and 1.3% in US dollar terms, respectively, in October. JPMorgan believes India’s relative strength was supported by resilient quarterly earnings reported so far and its relative defensiveness during the global sell-off in AI-related stocks; high oil prices and foreign selling offset some of the positives.
After Brazil’s incumbent president unexpectedly won the election, the market underwent a sharp repricing. The MSCI Brazil Index fell 12.1% in US dollar terms in October, and the real fell 4.9% during the month. JPMorgan believes inflationary pressure and currency weakness raised the bar for further rate cuts and expects Brazil’s central bank to hold rates steady in November.
Consensus earnings per share estimates for emerging markets overall for 2026 and 2027 were revised upward by 0.8% and 1.2%, respectively, in October; Brazil’s were revised downward by 3.4% and 2.5%, respectively, showing that earnings expectations diverged across markets.

Emerging-market equity funds provisionally recorded net inflows of 9.2 billion US dollars in October, reversing net outflows of 7.2 billion US dollars in September. Passive funds attracted 11.8 billion US dollars, while active funds still saw outflows of 2.7 billion US dollars, narrowing from 6.9 billion US dollars in September. These provisional figures are as of 28 October and include only weekly reporting funds, excluding local funds.
Brent and WTI crude rose 13.6% and 15.2%, respectively, in October, each gaining more than 10% for a second consecutive month. JPMorgan attributed the increases mainly to Middle East tensions raising the geopolitical risk premium; vessel rerouting and transshipment also increased freight costs.
Over the same period, the Federal Reserve, European Central Bank and Bank of Japan all held rates unchanged. JPMorgan expects the subsequent policy path may be more hawkish, with the oil price and interest rate environment together creating external pressure on emerging markets.