Investors Shift Focus to Emerging Markets Amid Global AI Sector Volatility

Global equity markets experienced significant turbulence following concerns over artificial intelligence, prompting investors to reallocate capital toward emerging markets. The primary MSCI developing-country index was heavily impacted due to its heavy reliance on chip giants such as Samsung Electronics Co., SK Hynix Inc., and Taiwan Semiconductor Manufacturing Co., which collectively account for nearly 30% of the benchmark.

Amid these declines, money managers are pointing to rock-bottom valuations and high dividend yields in developing nations. According to market data, the MSCI developing-nations benchmark trades at roughly eight times forecast earnings for the next 12 months, which is less than half the multiple of the S&P 500, while offering a dividend yield about twice as high.

Sat Duhra, a portfolio manager at Janus Henderson Investors, noted that focusing narrowly on a few concentrated names does not work over the long term. Duhra stated that he has been adding higher-yielding stocks in China and Hong Kong while avoiding a return to technology exposure for now.

Other investors are shifting allocations to various non-tech sectors and geographies. These include South American utilities, eastern and central European financial firms, and Chinese and Taiwanese consumer-goods manufacturers. Maxence Visseau, chief investment officer of Arkevium Capital in Dubai, observed that many non-tech sectors and markets in emerging economies offer stronger long-term growth compared to US counterparts at more attractive multiples.

The sell-off in AI-exposed equities also drove capital inflows into India. The NSE Nifty 50 Index recorded a 2% gain, securing its best week since 2021, while benchmarks in other regions declined. Bing Yuan, a fund manager at Edmond de Rothschild, described India as a logical anti-AI trade for investors seeking alternatives, though caution remains regarding the dominant IT services sector.

In Latin America, portfolio managers are identifying value despite recent regional volatility, including the aftermath of elections in Brazil. Malcolm Dorson, senior portfolio manager at Global X Management, highlighted that Latin America presents minimal AI exposure alongside deep value and commodities. Dorson has increased allocations to utilities, banks, and copper and gold miners across the region.

Similarly, Robert Naess of Nordea Investment Management has been shifting investments toward telecoms and consumer goods, acquiring shares in companies such as Chinese sportswear maker Anta Sports Products Ltd. and Taiwanese computer hardware manufacturer Getac Holdings Corp. Naess remarked that while AI will impact the global economy, it does not necessarily make AI stocks the optimal investment moving forward.

"The recent shift toward emerging markets highlights a classic portfolio management strategy: risk diversification during sector-specific downturns. When concentrated trades like artificial intelligence face valuation pressures and regulatory or market uncertainties, institutional capital naturally migrates toward regions offering deep value, strong dividend yields, and lower correlation. For founders, entrepreneurs, and investors, this macro environment underscores the importance of building resilient business models that appeal to diversified capital sources rather than relying solely on momentum-driven sectors." — Dr. Shishir Gupta, Founder & CEO, StartupLanes