Webinar – Emerging Market Equities: AI Growth, Valuations and Investment Opportunities

Emerging markets are evolving, with technology, artificial intelligence (AI) and semiconductor manufacturing playing an increasingly important role alongside established investment themes such as consumer growth, financial services and infrastructure.

In our webinar on emerging market equities, Nabil Qizilbash was joined by Ehsan Khoman of BlackRock Investment Institute and Hiren Dasani of White Oak Capital to discuss the opportunities and challenges shaping the asset class.

The conversation explored the changing composition of emerging market indices, the sustainability of AI-driven investment, valuations across major economies and the risks investors should monitor over the coming months.

Emerging markets are no longer just a commodities story

Emerging markets have traditionally been associated with commodities, consumption and underpenetrated financial services. However, the composition of emerging market equities has changed significantly, with technology now representing a substantial part of the investment landscape.

Hiren Dasani highlighted the growing importance of technology, particularly semiconductors and the supply chain supporting AI infrastructure. Alongside these developments, traditional opportunities in consumer businesses, healthcare and financial services continue to offer potential for stock selection.

This shift means investors need to consider the different drivers of returns across individual markets and sectors, rather than treating emerging markets as a single investment opportunity.

Why BlackRock sees opportunities in emerging market equities

Ehsan Khoman explained that BlackRock’s constructive view on emerging market equities reflects a combination of improving corporate earnings, relative valuations and changes in investor positioning.

As interest rates remain elevated, corporate earnings may need to play a greater role in supporting equity returns. Emerging markets also trade at a discount to US equities, although valuation alone does not guarantee stronger performance.

As Ehsan explained:

“Earnings can outrun the drag from higher interest rates.”

The discussion emphasised that this is a selective investment view, rather than a broad endorsement of every emerging market. Investors need to identify businesses with visible earnings, resilient balance sheets and sustainable competitive advantages.

AI and semiconductors: opportunities beyond the technology sector

AI was a central theme throughout the webinar, particularly the demand for computing power, memory and advanced semiconductor manufacturing.

Taiwan and South Korea remain important to the semiconductor supply chain, while the growing requirements of AI infrastructure are creating opportunities in areas such as electricity generation, power networks, cooling and industrial equipment.

Ehsan noted that AI-related demand could remain strong over the next one to three years, while highlighting uncertainty around how smoothly that demand will develop and which businesses will ultimately capture the profits.

One important consideration is the conversion of significant capital expenditure into sustainable revenue, earnings and free cash flow. If AI adoption takes longer than expected to generate commercial returns, companies may reassess their investment plans.

The discussion also highlighted the potential for opportunities beyond chip manufacturers, as the physical infrastructure required to support AI expands.

India: structural growth and the importance of valuation

India was discussed as a market benefiting from several longer-term economic drivers, including rising incomes, domestic consumption, infrastructure investment, digitalisation and the development of domestic capital markets.

These trends could support businesses across financial services, healthcare, consumer markets, industrials and logistics. However, the speakers stressed that strong economic growth does not automatically translate into strong equity returns.

Valuations, energy dependence and the ability of businesses to convert economic expansion into sustainable returns remain important considerations.

For Hiren, bottom-up stock selection is central to identifying opportunities, particularly among mid- and small-cap companies where differences in business quality and valuation can be significant.

China: selective opportunities amid structural challenges

China presents a more nuanced investment picture. Ehsan discussed the country’s strengths in advanced manufacturing, batteries, industrial automation, power equipment and AI-related infrastructure.

However, property-sector challenges, subdued household consumption, excess capacity and intense competition continue to create uncertainty. Technological progress alone does not necessarily translate into attractive shareholder returns.

The discussion therefore focused on the importance of identifying companies capable of protecting profitability, generating cash flow and creating value for shareholders.

Hiren also highlighted selected opportunities among Chinese technology and internet businesses, while emphasising the importance of individual company analysis rather than making broad assumptions about the market.

Brazil and Latin America: the physical infrastructure behind AI

The webinar also explored how Latin American economies could benefit from the investment required to build and operate AI infrastructure.

Brazil’s natural resources, metals industry, electricity generation and transmission networks could provide exposure to the physical requirements of expanding data centres and industrial automation.

Ehsan highlighted that the opportunity extends beyond the technology companies themselves to include materials, utilities, industrial suppliers, transport infrastructure and businesses financing these developments.

The speakers also discussed the differences between Brazil and Mexico, with Brazil offering exposure to resources and power infrastructure, while Mexico has a stronger connection to manufacturing and logistics.

These opportunities remain dependent on company fundamentals, valuations and the wider economic environment.

What risks should investors monitor?

Despite the opportunities discussed, several risks were identified that could influence emerging market performance.

These included:

• Interest rates and bond yields: A disorderly rise in developed-market long-term yields could tighten financial conditions and put pressure on equity valuations.
• Energy prices: Prolonged disruption to energy supplies could benefit some commodity exporters while increasing inflation and currency pressures in importing economies.
• AI investment returns: Companies must demonstrate that significant spending on AI infrastructure can translate into sustainable earnings and cash flow.
• Competition and profitability: Rapid capacity expansion and intense competition can erode margins, even in strategically important industries.
• Market-specific risks: Differences in valuations, economic conditions and corporate fundamentals mean that opportunities and risks vary considerably between countries.

Hiren also emphasised the importance of assessing competitive intensity and whether businesses can generate returns on invested capital above their cost of capital.

Watch the full webinar

Emerging market equities offer a diverse range of potential investment opportunities, from AI and semiconductor manufacturing to financial services, consumer businesses and infrastructure.

However, the discussion highlighted the importance of looking beyond headline economic growth and identifying businesses with sustainable earnings, sound balance sheets and attractive valuations.

Disclaimer: This webinar is for informational and educational purposes only and does not constitute investment advice or a personal recommendation. The views expressed are those of the individual speakers and do not necessarily represent the views of IDAD. The information should not be relied upon as the basis for investment decisions. Please refer to the full disclaimer accompanying the recording.