Ahmad Assiri Research Strategist at Pepperstone

(MENAFN- Your Mind Media ) AI Trading in Emerging Markets
Emerging equity markets offer investors a mix of direct exposure to AI hardware at valuations that make the Magnificent Seven stocks look expensive. With accelerating flows, moderate positioning and the potential for favorable geopolitical tailwinds in the second half of the year, the opportunity in emerging markets is compelling on multiple fronts verses developed market.

The Valuation Gap Is Too Large to Ignore
While the forward PE multiple of the MSCI Emerging Markets index remains well below its historical average relative to the MSCI World index, exposure to emerging markets is far from elevated. Despite a strong rally in 2025, Asian equities continue to trade at a discount to developed markets. The margin appears to be meaningful in market pricing, at a time when a genuine earnings recovery is well underway. Meanwhile, investor positioning in emerging markets remains relatively low though accelerating year-to-date, have yet to reflect the scale of the trend.

Memory Holds Up, Earnings Prove Their Worth
The AI driven rally in Asia is shifting global investor attention toward South Korea and Taiwan, where Samsung, SK Hynix, and TSMC are leading semiconductor-driven gains. The rally in the memory sector has been substantial, yet the bear case remains premature. Meaningful supply additions will not arrive before the second half of next year and stocks typically price in a deterioration in supply demand dynamics six to nine months before it occurs, meaning the window for a bearish turn has not yet opened. Memory suppliers, chip component makers and the broader Taiwanese semiconductor ecosystem all exhibit the same pattern: earnings are strongest where exposure to AI hardware bottlenecks is highest. Asian AI hardware plays have outperformed the Mag 7 by more than double since the start of the year, and the multiple gap between the two markets suggests this trend still has room to run.
Chinese Tech: A Catch-Up Trade
At the end of 2025, the CSI 300 was trading below prior historical levels and at a meaningful discount to both the S&P 500 and the MSCI World ex US index. Although approximately 50% of the MSCI China index is concentrated in technology and internet companies, it still trades at a discount to where the S&P 500 is valued. The underlying AI catalyst is real investment in AI and cloud computing by Chi’a’s major internet companies is expected to grow significantly in 2026, and the DeepSeek moment may have reshuffled the market's assessment of Chinese technological capabilities. The discount relative to emerging market peers and global tech is near record levels, and that gap will not persist indefinitely.

Geopolitics: Buy the Dips
The Iran conflict triggered a pullback in March, but the response mechanism was revealing. The MSCI Emerging Markets Currency Index fell only around 3% from its February peak to its March trough, far less than the drawdowns seen during COVID or the Global Financial Crisis suggesting that demand for the dollar as a safe haven was more restrained than feared. Emerging markets have demonstrated their ability to absorb geopolitical shocks without sustaining structural damage in the current environment. Should conditions stabilize in the second half of the year, easing concerns over oil supply would remove one of the few remaining headwinds to this trend. Headline-driven waves of weakness remain likely opportunities to add exposure.

The Nature of the Trade
Valuations, positioning and flows are all aligned. EPS growth in the EM technology hardware and semiconductor sectors is expected to be strong in the near term, while the entertainment sector adds further to growth. The earnings engine is running at capacity, the multiple has yet to catch up, and the investor base remains underweight. For portfolios seeking AI exposure without paying Mag 7 prices, emerging markets and Asia in particular are the natural destination for this trade.

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