By Reshma Kapadia
Emerging market stocks are hitting new highs, powered by Asia's artificial intelligence juggernauts, including Taiwan Semiconductor Manufacturing and South Korea's Samsung Electronics and SK Hynix.
Elsewhere, commodities and energy exporters in Latin America are seeing increased demand as the Strait of Hormuz remains blocked.
Thea Jamison, manager of Change Global Investment, says emerging markets are in "complete breakout territory" on technical terms in a way that she thinks will attract more inflows, which create their own momentum.
While more gains are likely ahead, investors may want to pick their spots carefully amid AI euphoria and pain across some emerging markets from the Iran war. Even some of those struggling markets, however, including energy importers like India, could see a reprieve, and Korea and Taiwan could get a boost with a peaceful resolution in Iran.
The iShares MSCI Emerging Markets index is up almost 20% this year, outperforming the S&P 500's 6%, recouping losses in the early days of the Iran war.
The iShares MSCI Emerging Markets ETF, meanwhile, has held up well after a strong gap higher on April 8, triggering a bullish reversal signal, according to Barron's senior technical analyst Doug Busch. Since then, the ETF has broken out of a short-term bull flag, reinforcing the view that buyers remain in control and momentum is building to the upside.
But technicals aren't the only thing at play here. UBS strategists see a positive road ahead for emerging markets, which they favor over developed markets.
Emerging markets tend to do better when the dollar is weak, and UBS strategists note the dollar's recent inability to strengthen despite real interest rate differentials with Europe and better-than-expected economic growth. That creates breathing room for emerging markets at a time when relative valuations versus other regions are back to 20-year lows.
The question then is where within emerging markets investors should go, especially as many investors have already piled into the emerging markets version of the Magnificent Seven stocks.
Taiwan Semi, Hynix and Samsung account for a quarter of the index. Fund managers still see the Asian trio as well-positioned with gains ahead, noting their pricing power even as some worry about the second-tier AI related companies in places like Taiwan.
Jamison, who thinks emerging markets are early in this bull market, is hedging AI-oriented holdings with Latin American oil producers like Argentina's YPF and Brazil's Petrobras .
Analysts had expected oil prices to average $60 barrel headed into the year. But the war has put oil above $100 and, even if it settles around $70 to $80, Jamison says these energy companies will top analysts' estimates and see higher free cash flow.
The stocks, which Jamison says are under-owned as investors have ignored the region for years, are trading at half the valuations of U.S. energy peers and both have promising exploration opportunities, including YPF's development of Vaca Muerta, the second largest shale gas reserve after the Permian Basin.
Derrick Irwin, who co-heads AllSpring Global's Intrinsic Emerging Markets Equity strategy, has more invested in Latin American than his peers but tilts more toward domestically-oriented stocks like Brazilian exchange operator B3 , which should benefit from increased interest in the region from investors.
Irwin also sees opportunities in China, with recent improvements in the Purchasing Managers' Index, surveys of hiring intentions and other data points signaling a slight upturn in what has been a multiyear economic rout.
"I don't want to oversell it but it's showing signs of stabilization and we are seeing China is not in bad shape," Irwin says, adding that China has been relatively resilient in the wake of the Iran war even though it is a net oil importer.
China's steady efforts to diversify its energy, especially in renewables, and building up its strategic petroleum reserves blunted the hit. As the war pushes others to reup their own energy diversification push, Jamison sees Chinese battery company CATL as a beneficiary. She is also looking into brokerages that could benefit from the IPO-fever that has hit Hong Kong.
Allspring's Irwin still favors Chinese internet giants like Alibaba and Tencent, which represent the "full stack" of AI and are incorporating AI creatively into business models. But he is increasingly digging through the battered consumer stocks in China that stand to benefit if the economy stabilizes.
Irwin also sees opportunities in South Africa as the economy begins to reap rewards from structural changes in recent years, with grocer Shoprite among his holdings.
Another reason for optimism: For the first time in years, emerging markets isn't just a play on China as opportunities pop up in Latin America and more emerge in Central and Eastern Europe, as well, Jamison says.
"It's so much more balanced," she says.
Write to Reshma Kapadia at reshma.kapadia@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
May 07, 2026 02:00 ET (06:00 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments