Emerging Market Funds Bet Big on AI Stocks, Outpacing Tech Giants
Emerging market funds are increasingly investing in AI stocks, with impressive results. The top six contributors to this year's emerging market rally are all AI-related firms, accounting for 37% of the index's growth. These AI stocks are outperforming even the 'Magnificent Seven' megacap tech firms. Investment experts project this trend to continue for 10-20 years, with AI-related stocks expected to drive a third of emerging market returns. The average estimate of forward 12-month earnings for emerging market tech stocks has increased by 15%, compared to 6% for emerging market stocks overall. Despite broader market challenges, AI-heavy IT sector companies have consistently met earnings projections since Q4 last year.
*this image is generated using AI for illustrative purposes only.
In a significant shift in investment strategy, emerging market funds are increasingly turning their attention to artificial intelligence (AI) stocks, a move that's proving to be highly lucrative. Asset managers, including AllSpring Global Investments and GIB Asset Management, are ramping up their portfolio allocations in AI companies, riding the wave of technological innovation sweeping across developing economies.
AI Stocks: The New Powerhouses of Emerging Markets
The pivot towards AI has yielded impressive results, with AI-focused companies emerging as the primary drivers of growth in emerging markets. According to Bloomberg's EM stocks index, the top six contributors to this year's rally are all AI-related firms:
| Company | Alignment |
|---|---|
| Taiwan Semiconductor Manufacturing Co. | Left |
| Tencent Holdings | Left |
| Alibaba Group | Left |
| Samsung Electronics | Left |
| SK Hynix | Left |
| Xiaomi | Left |
Collectively, these six companies account for a staggering 37% of the index's rally, underscoring the outsized impact of AI investments on emerging market performance.
Outperforming the 'Magnificent Seven'
In a surprising turn of events, emerging market AI stocks have outpaced even the vaunted 'Magnificent Seven' megacap tech firms this year. This group, which includes giants like Apple, Microsoft, and Google, has long been considered the gold standard of tech investments. The fact that emerging market AI stocks are now outperforming these behemoths signals a potential shift in the global tech landscape.
Long-Term Potential
Investment experts are bullish on the long-term prospects of AI in emerging markets. AllSpring's head of emerging markets equity believes this trend could persist for the next 10 to 20 years, indicating a sustained period of growth and opportunity in this sector.
GIB Asset Management is equally optimistic, projecting that a third of emerging market returns in the coming years will be derived from AI-related stocks. This forecast underscores the growing importance of AI in shaping the future of emerging economies and their financial markets.
Impressive Earnings Growth
The enthusiasm for AI stocks in emerging markets is backed by solid financial performance. The average estimate of forward 12-month earnings for emerging market tech stocks has surged by 15.00% since the beginning of the year. This growth rate is more than double the 6.00% increase seen for emerging market stocks overall.
Consistent Performance Amid Market Volatility
While the broader emerging market landscape has faced challenges, with companies missing profit expectations by more than 12.00% since early 2022, the AI sector has shown remarkable resilience. Companies in the AI-heavy information technology sector have consistently met earnings projections since the fourth quarter of last year, demonstrating their ability to deliver results even in uncertain economic conditions.
The Road Ahead
As emerging market funds continue to increase their exposure to AI stocks, investors are watching closely to see if this trend will reshape the landscape of global investing. With the potential for sustained growth and innovation in AI technologies across developing economies, emerging market funds may be positioning themselves at the forefront of the next big wave in tech investing.
For investors and market watchers alike, the rise of AI stocks in emerging markets presents an intriguing opportunity to tap into the transformative power of artificial intelligence in rapidly evolving economies. As this trend unfolds, it may well redefine the balance of power in the global technology sector and offer new avenues for growth in emerging market investments.
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