EM equities gathering momentum

Emerging markets have performed well in 2025. Is this the start of a long-term pivot toward EM?

"In the long run, the themes that underpin EM are strong, such as demographics, investment potential, digitization and intra-regional trade. And in between, we will have cycles of advance and decline. Currently, there are some challenges facing emerging markets including the global trade war. However, there is an alignment at the same time that can push EM into a multi-year upcycle. There is a positive relative growth gap with developed markets, a superior earnings growth picture, the peaking of high real interest rates in many EM countries, attractive valuations and low institutional investor positioning. Add to that the possible end of US exceptionalism and a weaker USD, and a positive long-term outlook for emerging markets equities looks justified."

The consensus is that India has a great future, but as a result it has a relatively expensive stock market. What’s your view on the medium and long-term prospects?

"From an investment perspective, India presents a classic dichotomy. On the one hand, its long-term economic prospects are exceptionally strong, fueled by demographics and transformative policy reforms. On the other hand, this narrative is well understood and largely reflected in current market valuations. Our stock evaluation process indicates that many Indian equities are priced for perfection, with valuations that assume flawless execution and indefinite high growth. We have already observed early signs of strain in these lofty expectations over the past few quarters. For us to increase our investment exposure to the Indian market in our EM equity strategies, we would first need to see a repricing of risk, where valuations are reset to more sustainable and fundamentally justified levels."

AI is an interesting investment opportunity. How do you play this theme in EM?

"Within EM, there are various ways to get exposure to the global AI theme. We are invested in the leading technology hardware providers for this AI revolution, based out of Taiwan and South Korea. These companies design and develop critical components that are not easily available elsewhere in the world. Earlier this year, we had the DeepSeek moment, that demonstrated to the world that there is a rapidly developing technology ecosystem in China that can compete with the leading US companies. Earlier this year, we had the DeepSeek moment, that demonstrated to the world that there is a rapidly developing technology ecosystem in China that can compete with the leading US companies. Furthermore, the Chinese government is also supportive and wants to nurture the AI-technology from within the borders of China. We are invested in some key Chinese companies that are related to the AI investment opportunity. Then we also have some exposure to the Indian software outsourcing companies that are providing solutions and implementation of AI solutions for global companies."

Which trends and opportunities are most prominently reflected in your portfolio?

"We are one of the few EM equity managers that still do country allocation next to stock selection. Here we review countries that have a large weight in our strategies which include:

South Korea – we see very well-managed companies and are leading players within the industries that they are operating in, while they are trading at very attractive valuations. Also, the favorable election outcome will mean a continuation of the ‘Value Up’ program. This would mean better capital allocation, improved governance and higher dividends. This will reduce the valuation discount for the South Korean equity market going forward.

China remains an important market for us, where although growth has slowed down, there are still attractively valued opportunities. Given the breadth of the market, we have to be selective and avoid the more vulnerable pockets of the market. Hence, we are for example invested in various e-commerce and internet companies that are trading at very attractive valuations.

Taiwan, although valuations have re-rated, still provides us with good opportunities related to the information technology sector that remain critical for the AI revolution. Although India is enjoying one of the best macroeconomic outlooks in the emerging market universe, most of this story is already reflected in the equity market. Hence, we are more selectively positioned. We like the private sector banks and the IT software solutions providers where we still see some relative value. In We are one of the few EM equity managers that still do country allocation next to stock selection.

Here we review countries that have a large weight in our strategies which include: South Korea – we see very well-managed companies and are leading players within the industries that they are operating in, while they are trading at very attractive valuations. Also, the favorable election outcome will mean a continuation of the ‘Value Up’ program. This would mean better capital allocation, improved governance and higher dividends. This will reduce the valuation discount for the South Korean equity market going forward.

China remains an important market for us, where although growth has slowed down, there are still attractively valued opportunities. Given the breadth of the market, we have to be selective and avoid the more vulnerable pockets of the market. Hence, we are for example invested in various e-commerce and internet companies that are trading at very attractive valuations.

Taiwan, although valuations have re-rated, still provides us with good opportunities related to the information technology sector that remain critical for the AI revolution.

Although India is enjoying one of the best macroeconomic outlooks in the emerging market universe, most of this story is already reflected in the equity market. Hence, we are more selectively positioned. We like the private sector banks and the IT software solutions providers where we still see some relative value.

In Brazil, real rates are very high due to the expansionary fiscal stance and rising inflation. Approaching peak inflation rates, going forward, a rate-cut cycle can re-rate the market.

Then there are some smaller markets that have idiosyncratic drivers such as Greece, Indonesia, Vietnam, Mexico, UAE, Turkey and South Africa. Also, here we find very good opportunities that are trading at attractive valuations. , real rates are very high due to the expansionary fiscal stance and rising inflation. Approaching peak inflation rates, going forward, a rate-cut cycle can re-rate the market. Then there are some smaller markets that have idiosyncratic drivers such as Greece, Indonesia, Vietnam, Mexico, UAE, Turkey and South Africa. Also, here we find very good opportunities that are trading at attractive valuations."