Time to look beyond the AI and tech trade in emerging markets
Navin Hingorani
Emerging markets have performed strongly over the past 12 months but given how heavily the index is weighted toward AI and tech holdings, now is the time for investors to be more selective, according to Navin Hingorani, portfolio manager at Eastspring Investments.
“The artificial intelligence (AI) and technology trade has been a prominent factor in the strong performance and earnings growth of emerging markets (EMs) over the past 12 months and we expect this trend to continue in the second half of the year.
“However with a highly concentrated index in AI and tech, it is time for investors to look beyond this trade for other opportunities in EMs, and there are a lot of other opportunities to capitalise on in emerging markets outside of the AI and tech trade,” said Hingorani.
The MSCI Emerging Markets Index has returned around 26 per cent year-to-date (YTD), outperforming the S&P 500. A large amount of that performance has been driven by technology and AI-exposed mega caps like Taiwan Semiconductor Company (TSMC).
Despite many investors pulling out of consumer stocks and reallocating into AI and tech-related stocks, Hingorani says the opportunity set in the consumer sector is shifting.
“For bottom-up managers like ourselves, valuation has always been a big focus. Historically we haven’t found many opportunities in the consumer space, but we are finding a lot more today. Valuations are attractive across various opportunities in the consumer sector and across EM geographies. Our portfolio currently has an overweight position in the consumer sector.”
Hingorani adds that more opportunities are appearing outside the traditional markets in Asia.
“There are 24 markets within EMs. Most investors would be overweight in the traditional markets in Asia, however we are finding more opportunities in markets such as Latin America (LATAM), emerging Europe, Middle East, and Africa. For example, LATAM is a natural beneficiary of higher oil prices, and also benefits from very high real rates.”
With emerging markets offering more than 3000 liquid stocks across 24 countries, Hingorani says an active management approach works best for investors seeking diversification and exposure to emerging markets.
“An active approach works best at identifying stock opportunities in EMs. Investors should be cautious about investing passively into EMs at the moment, as the concentration that we’ve seen with US tech is now happening in EMs. Tech now makes up around 45 per cent of the MSCI Emerging Markets Index, as of 30 June 2026.
“Essentially, a passive EM strategy is going to give you a lot of the same exposure you’re likely already getting through a US equities strategy, given its high tech concentration.”
“If investors are seeking diversification, moving away from a passive approach to emerging markets and allowing an active manager the opportunity to add alpha may be worth considering,” says Hingorani.
