The top emerging markets opportunities to watch right now

One major area of interest for today’s investors is emerging markets income equity. In this article, we interview lead emerging markets income equity manager Matt Williams to discuss the potential available in this compelling category. Our first question relates to the impact of current geopolitical tensions.

What’s the short-term outlook given today’s situation?

Markets have delivered a volatile ride this year, with competing narratives around the AI capex boom and geopolitical risks, including the Strait of Hormuz. So far, AI has dominated, with investors looking through supply disruptions and focusing on technology investment. 

Performance trends in emerging and developed markets have converged, although emerging markets have continued their 2025 outperformance, supported in part by a higher weighting to memory-chip producers in the MSCI Emerging Markets Index. A key question now is how long this can continue, with increasing investor debate around the sustainability of tech hardware outperformance and whether, or when, energy supply disruptions will impact economies.

Tell us about recent portfolio activity against this backdrop.

Given the range of outcomes in this market, we aim to balance the risks in the portfolio, to both the upside and downside. Technology stocks continue to rally despite higher geopolitical risk premiums and we have allowed our preferred AI plays to run, including leading memory-chip suppliers. However, in other areas we’ve reduced risks and exposure to cyclicality. For example, we’ve trimmed some bank positions and some smaller holdings in frontier markets. There are some cases we are monitoring for additions and top-ups, where valuations have been a hurdle in the past, including some stocks in India.

Tell us about your portfolio holdings, and the thinking behind them.

Our emerging markets income equity portfolio remains anchored to two pillars:  

Within these two buckets there are three structural themes that underpin earnings: technology, infrastructure and domestic consumption.

Technology

In technology, our focus has moved from AI training to monetisation. We are increasing exposure to companies enabling AI applications, where visibility on cashflow is improving. Taiwanese semiconductor company Realtek is a recent addition, benefiting from rising device connectivity and strong free cashflow. We also retain core holdings in another Taiwanese company MediaTek, as well as South Korea’s Samsung and SK Hynix. We see growing opportunities as China develops domestic technology standards, expanding the investable universe.

Infrastructure

In infrastructure, demand is supported by national resilience. Copper remains an essential input for grids, with favourable supply dynamics and long lead times. Grupo Mexico is our preferred exposure given its low-cost assets. We also favour uranium through Kazakhstan’s national atomic company, Kazatomprom, reflecting the role of nuclear power in baseload energy. Recent additions include Greek energy company Metlen, where free cashflow is improving post-capex, and China’s CATL, where we see strong positioning in batteries and energy storage.

Domestic consumption

In domestic consumption, we focus on businesses linked to rising incomes and a growing middle class. Thai private hospital operator Bangkok Dusit Medical is a recent addition, offering attractive income with improving cashflow as capex peaks and utilisation rises.

Tell us more about the team behind the emerging markets income equity strategy.

I lead the Aberdeen emerging markets equity income strategy, supported by a dedicated portfolio construction group (pod) and a broader emerging markets equity team of around 50 investors. The team combines local, on the ground research with centralised portfolio construction, ensuring both depth of insight and consistency of decision making.

What’s the investment process?

The investment process is fundamental, bottom up and centred on a ‘follow the cashflow’ approach. The team focuses on identifying companies with strong, sustainable cash generation and disciplined capital allocation. Ideas are generated by regional analysts and subjected to peer review before inclusion in the portfolio. In constructing the portfolio, the team applies style, risk and yield disciplines to stock level convictions.

What are the portfolio’s characteristics and how do they feed through to performance?

We seek to maintain a balanced style profile with 50% in profitable growth and 50% in sustainable value, and we don’t alter the balance. The strategy is risk-aware and maintains a constrained tracking error, with a range of 3-4% and a strong emphasis on stock specific risk rather than factor exposure. Finally, we maintain a yield premium of at least 30% compared to our reference index. This has been an important driver of total returns since inception.  

More about emerging markets income equity

Aberdeen has had an established on-the-ground presence in emerging markets since the late 1980s. To learn more about investing in emerging markets income equity with us, and see our performance in detail, visit our website.

Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.
  

A version of this interview was first published in Investment Week.