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The AI Glow-Up of Emerging Markets

Mar 3, 2026 - 11:44
Mar 3, 2026 - 11:48
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The AI Glow-Up of Emerging Markets

AS we move through 2026, the convergence of breakneck tech innovation and attractive relative valuations make EM a compelling chapter for investors.

Key takeaways for your portfolio:

The tech takeover.

EM has pivoted from a "commodities" play to a "chips and software" play.

Technology and artificial intelligence (AI) sectors dominate the performance of some of the largest EM countries, serving as a far more influential force than energy or materials.

Deep valuation discounts.

EM stocks are trading at compelling discounts compared to U.S. giants, based on price-to-earnings (P/E) ratios for the MSCI Emerging Markets Index versus the S&P 500® Index.1

The involution risk. 

Watch out for "involution"—a term for the profit-killing price wars seen in some hyper-competitive markets in China.

If AI companies can't turn innovation into actual earnings, their attractive valuations may not matter.

Keep it balanced.

EM now mimics the U.S. tech sector, so it may move in lockstep with some of your larger existing equity holdings. EM is a powerful potential growth engine but might best serve as a "satellite" allocation due to inevitable volatility.

Currency considerations.

Any further softening of the dollar would act as an automatic performance "bonus" for U.S.-based investors holding unhedged international stocks, although dollar strength would have the opposite effect.

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