Q2 2026 Fund Commentary

Commentary and opinions are provided by JPMorgan Asset Management (Canada) Inc..

Market commentary

Emerging markets delivered exceptional performance in the second quarter of 2026, with the broader emerging markets index gaining ground versus developed markets and the U.S. equity market. The quarter was shaped by easing Middle East concerns, expectations of a U.S. and Iran ceasefire and the eventual reopening of the Strait of Hormuz, alongside renewed strength in the artificial intelligence (AI)-driven memory cycle. Strong first-quarter earnings and upward revisions to AI-related capital expenditure supported tech-heavy markets, while risks centred on valuation concerns, U.S. Federal Reserve Board (Fed) signals and lower commodity prices.

In Asia, South Korea and Taiwan led gains through the quarter, supported by strong semiconductor earnings, AI-related momentum and index-related passive inflows. India rebounded in April and held up better in June as lower oil prices, a resilient rupee and supportive policy measures helped offset information technology weakness and higher U.S. yields. China was mixed, with AI infrastructure beneficiaries continuing to perform well, while broader equities lagged on soft domestic demand, weak credit data, property pressure and tighter cross-border capital controls.

EMEA delivered more subdued returns as geopolitical uncertainty, higher global yields and weaker precious metals limited upside. Hungary was a standout performer, helped by political change and relative resilience, while South Africa advanced early in the quarter before lagging in June as mining stocks sold off on weaker gold.

Latin America lagged broader emerging market peers despite select pockets of strength. Brazil was a key drag as inflation pressures and a cautious policy backdrop weighed on sentiment, even as activity data remained relatively resilient across industry and services. Argentina and Colombia delivered strong gains at different points in the quarter, while Mexico was mixed.

Performance

Stock selection in South Korea contributed to performance, led by holdings tied to the memory semiconductors. Stock selection and an underweight allocation to China also contributed to performance. In the sub-advisor's view, a lack of exposure to Chinese internet platforms helped, as they lagged the AI-hardware complex.

SK Hynix Inc. contributed to performance. In the sub-advisor's view, sustained enthusiasm around AI infrastructure spending, ongoing tightness in high-bandwidth memory supply and rising server-memory demand drove a powerful rerating. Montage Technology Co., Ltd. also contributed to performance, as first-quarter results exceeded expectations.

Stock holdings in Brazil detracted from performance during the quarter. In the sub-advisor's view, Brazilian equities underperformed pressured by sector rotation into information technology, political uncertainty and restrictive monetary policy amid persistent inflation. Indonesian equities also detracted from performance.

MediaTek Inc., a fabless semiconductor company, detracted from performance. An underweight position hurt relative returns as the stock benefited from enthusiasm around its AI ASIC opportunity and broader edge-to-cloud strategy. Bank Central Asia Tbk PT also detracted from performance, driven by sustained pressure from currency weakness, capital outflows and a broader country-level drawdown, despite the bank's resilient fundamentals.

Portfolio activity

The sub-advisor added Companhia de Saneamento Básico do Estado de São Paulo, a regulated monopoly with improved governance following privatization and a capex-driven growth opportunity. The sub-advisor increased Raia Drogasil SA, which in the sub-advisor's view remains a high-quality consumer staples business whose earnings growth appears disconnected from its current valuation.

The sub-advisor sold PT Telkom Indonesia (Persero) Tbk, reflecting valuation discipline, weaker expected returns and reduced conviction in the investment case. The sub-advisor reduced Quanta Computer Inc. for position-sizing reasons after strong performance, while continuing to manage exposure to Taiwan hardware more broadly.

Outlook

In the sub-advisor's view, the strategy generally gravitates towards consumer staples businesses given better governance practices and more sustainable economics. This disciplined approach continues to underpin portfolio construction, prioritizing high-quality growth businesses with strong ESG profiles, durable reinvestment runways and prudent capital allocation, while maintaining valuation discipline to avoid overpaying for growth.

During the quarter, portfolio activity was elevated, but in the sub-advisor's view this reflected valuation discipline and a focus on improving expected returns rather than any change in philosophy. The sub-advisor continued to recycle capital away from areas where prospective returns had compressed or where the investment case had weakened, while adding to opportunities offering a more attractive balance of quality, growth and valuation. At the overall portfolio level, the key change was a more value-oriented tilt relative to history, partly reflecting reductions in selected technology and hardware names after strong performance.