Are the AI ‘Six Giants’ Leading This Year’s Emerging Market Gains?  

As U.S. stocks have flourished in the AI wave since Q2, emerging market funds are also attempting to ride their own AI “wave” this year.

 

Some investors predict that the booming tech spending will continue to drive substantial investment returns over the coming years…  

 

Growing evidence suggests that, inspired by the early-year DeepSeek wave and successful cases among Asian semiconductor companies, asset management firms like AllSpring Global Investments and GIB Asset Management are now concentrating more of their portfolios on AI-themed stocks.  

 

This has become an increasingly successful trading strategy, with six giant companies involved in AI and its related semiconductor supply chain—TSMC, Tencent Holdings, Alibaba, Samsung Electronics, SK Hynix, and Xiaomi Group—ranking as the top six contributors to the Bloomberg Emerging Market Equity Index’s gains this year, collectively accounting for 37% of the index’s rise.  

 

According to Citi Group’s equity strategists, the return performance of emerging market stocks heavily involved in AI this year has even surpassed that of the so-called “Magnificent Seven” U.S. stocks.  

 

It turns out that, despite many Wall Street figures believing the global AI investment boom is concentrated in a few Silicon Valley companies, emerging market firms leveraging this technology or providing key components are also benefiting.

 

For instance, beyond the six mentioned companies, AI servers have become a major growth driver for Hon Hai Precision.  

Could This Trend Last a Decade?  

Alison Shimada, head of global emerging market equities at AllSpring, which manages $61.1 billion in assets, stated, “This trend could last 10 to 20 years, with artificial intelligence having a transformative impact on local populations in emerging markets.”  

 

“If you don’t have an optimistic and positive view of how the AI narrative might evolve from a corporate earnings perspective, you can’t invest in emerging markets,” said Kunal Desai, co-portfolio manager of global emerging market equities at GIB Asset Management in London.  

 

Desai pointed out that South Korea will be a core driver of the emerging market AI narrative over the next two to three years, while China, Malaysia, India, parts of Latin America, and the Middle East—due to their involvement in AI data and applications—will reap “disproportionate gains.”  

 

 

His fund invested in AI-themed stocks during a recent market downturn and predicts that one-third of emerging market returns over the next few years will come from AI-related stocks.  

 

Signs suggest that as AI applications accelerate in areas like cloud computing and electric vehicles, this wave could indeed persist. The average earnings-per-share (EPS) forecast for emerging market tech stocks over the next 12 months has grown by 15% since the beginning of the year, compared to just 6% for overall emerging market stocks.  

 

“From a performance standpoint, AI’s contribution share will only grow from here,” said Xingchen Yu, an emerging market strategist at UBS Global Wealth Management. “The rise of AI and tech stocks is creating a new layer of long-term growth, especially in Northeast Asia.”  

 

This AI revolution could also help emerging market stocks overcome a long-standing key hurdle: earnings performance.

 

According to compiled industry data, since early 2022, the average performance of emerging market companies has lagged market forecasts each quarter—with the MSCI Emerging Markets Index constituents’ overall earnings expectations trailing by more than 12%.  

 

However, since Q4 last year, tech sector companies with significant AI involvement have consistently met market expectations, clearly boosting investor confidence.  

 

“This industry is expected to see explosive growth and will continue to do so,” said Young Jae Lee, senior investment manager at Pictet Asset Management. “Artificial intelligence will remain a critical area for emerging markets.”