• Emerging market equities have increasingly evolved into a technology and manufacturing-led asset class
  • A massive shift of cash flows from US hyperscalers to Asian semiconductor and hardware manufacturers is creating a rich hunting ground for active stock selection
  • The combination of strong earnings momentum, attractive valuations and improved macroeconomic resilience makes EM equities a potentially attractive opportunity

By Zhikai Chen, Head of Asia and Global Emerging Markets Equities

Traditionally, investors have viewed the investment case for emerging markets (EM) equities as predominantly based on favourable demographics, mining and low-cost manufacturing. We believe it is time for a thorough re-appraisal.

The current reality presents a striking contrast: EM equities has evolved into an asset class dominated by technology and advanced manufacturing.

Today, the combined weight of information technology and communication services stocks account for 44% of the MSCI Emerging Markets Index. Taiwan and South Korea, the two North Asian tech powerhouses, account for nearly half of the entire EM index.

In recent years, EM markets have decorrelated from the commodity cycles. EM equity performance is now driven mainly by earnings, anchored by frontier technology, hardware manufacturing and global infrastructure capital expenditure.

Find out more