Equities: EMs offer a rare alignment of growth and value

That combination is unusual. When it appears, it can create compelling entry points for long-term investors. In our view, this is where emerging market (EM) equities stand today.

A deeper opportunity set than the headlines suggest

To understand the opportunity, investors need to look beyond short-term narratives and focus on structural drivers. Three forces stand out.

1. Artificial intelligence: a multi-year investment cycle

The scale of AI investment is already significant and rising fast. Capital expenditure linked to cloud computing giants has expanded to an estimated US$770 billion, from around US$156 billion three years ago.[1] That is not an incremental trend.

While this spending is led by the US, much of the infrastructure supporting it sits in emerging markets, particularly across Asia.

The opportunity is not confined to a narrow group of companies. It extends across semiconductor manufacturing, equipment and testing, components such as copper-clad laminates, and the broader energy and materials ecosystem required to scale compute.

This is a multi-year investment cycle, and the value chain is significantly broader than the handful of headline technology names.

2. Energy security: from policy goal to growth constraint

Energy is no longer just a sustainability issue. It has become central to economic resilience.

Geopolitical developments have brought energy security to the forefront, both in Europe and across Asia. It is now a national priority, a prerequisite for industrial growth and a constraint on digital expansion.

This matters for investors. Without reliable energy, the growth of AI and digital infrastructure cannot be sustained. Energy is therefore deeply embedded in the broader growth story.

3. Consumption: the long-term engine

The third structural driver is more familiar, but no less important.

Around one billion people are expected to enter the global consumer class over the next decade, with Asia driving the bulk of this growth.[2]

This is a multi-decade demand story. It supports earnings growth across sectors and reduces reliance on external drivers such as exports.

Growth is broadening from tech

Recent performance in emerging markets has been concentrated. Markets such as Korea and Taiwan have driven returns, supported by strong earnings upgrades linked to the technology cycle.

This has been reflected in expectations for MSCI Asia Pacific ex Japan earnings growth, with forecasts pointing to around 55% growth in 2026, moderating to around 19% in 2027.[3]

However, the next phase of growth is becoming broader. We are seeing continued earnings upgrades across Asia, stronger activity beyond pure technology and improving export momentum outside the semiconductor sector.

This suggests that the growth story is evolving from a narrow, tech-led rebound into a more balanced and sustainable expansion.

Valuations still offer support

Despite recent volatility in AI-linked markets such as Korea, broad emerging market and Asia-Pacific ex-Japan equities still trade at sizeable valuation discounts to US equities. 

However, those discounts are uneven. AI-linked North Asian markets have re-rated sharply, and valuation support is stronger outside the most crowded semiconductor winners.

We think better value can be found elsewhere. As AI spending spreads into power, grids, industrials and data centres, more companies should benefit at more reasonable prices.

China also offers selective opportunities, with exposure to AI and domestic technology growth at much lower valuations than many global AI winners.

At the same time, earnings growth remains robust.[4] China is expected to deliver around 17% earnings growth in 2026 and 18% in 2027. India is forecast at roughly 15-16% over the same period. Taiwan and Korea show even stronger growth expectations, reflecting the technology cycle.

This combination of valuation support and earnings growth underpins our view that it is not too late to invest.

But the investment environment remains complex

There is, however, an important nuance.

Economically, many emerging markets no longer look ‘emerging’. Markets such as China, Korea and Taiwan are highly developed, technologically advanced and globally integrated.

But from a market perspective, they still behave differently. Policy frameworks continue to evolve, regulatory shifts can be abrupt and market behaviour is not always fully anchored to fundamentals.

At times, even leading markets can see share-price movements driven by retail flows or leverage, rather than underlying earnings. This can introduce volatility and, in some cases, distortions.

In this sense, ‘emerging’ is no longer only about economic development. It is also about market structure and behaviour.

Active management is critical

This environment has clear implications for investors.

First, index concentration remains a challenge. Emerging market benchmarks are heavily weighted towards a small number of large technology stocks. This can limit a manager’s ability to express high-conviction views.

Second, the opportunity set is significantly broader than the index. To capture structural themes such as AI effectively, investors need to look beyond the largest names, across market capitalisations, supply chains and less visible enablers of growth.

For example, exposure to AI may be expressed not only through major semiconductor companies, but also through equipment providers, component manufacturers and materials specialists.

Finally, navigating these markets requires deep, bottom-up research. Understanding how policy, capital flows and fundamentals interact is critical. These are not markets that can be accessed effectively through passive exposure alone.

A more nuanced outlook

Emerging markets today offer a compelling mix of powerful structural growth drivers, broadening earnings momentum and still-attractive valuations.

At the same time, they remain complex, dynamic and influenced by evolving market structures. This combination creates both opportunity and challenge.

In our view, the current environment represents a rare alignment of growth and value. But capturing that opportunity requires a selective approach, one that looks beyond the index and acknowledges complexity.