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Emerging markets are an AI play at a huge discount, says HSBC's Alastair Pinder
11/6/2025, 10:10:55 PM
Economic Summary
- Oppenheimer notes a global surge in stock indices at all-time highs — the broad move includes the Nikkei, KOSPI, STOXX 600, DAX, Bovespa, and EGX 30 — signaling synchronized international strength not seen in 26 years.
- Emerging markets have shifted toward new-economy sectors (tech, semiconductors, EVs), rising from about 15% to nearly 40% of the EM index, making EM Asia a cheaper way to access AI-related growth (e.g., SK Hynix, Samsung).
- The U.S. dollar has strengthened recently but is expected to weaken into next year; a softer dollar would enhance returns for non-U.S. equities and support flows into EM and European markets.
- LATAM and parts of EM carry very high policy rates (Mexico >7%, Brazil ~15%, South Africa ~10% bond yields), creating room for rate cuts that could drive valuation re-ratings even without strong earnings acceleration.
- Germany stands out in Europe due to fiscal/infrastructure stimulus that may be underpriced by markets; combined with outflows having derated valuations, this suggests potential upside for German equities.
- Tariff-driven stimulus has supported international markets; as tariff uncertainty eases and trade deals progress, exporters and economies reliant on trade may see improved prospects.
Bullish
- Emerging markets offer discounted AI exposure versus crowded U.S. names
- New-economy sectors now ~40% of EM index, up from ~15%
- Weakening dollar next year could boost international equity returns
- Germany stimulus and infrastructure spending implies upside amid derated valuations
- LATAM high rates allow cuts, supporting valuation re-ratings
- Easing tariff uncertainty and new trade deals are positive catalysts
Bearish
- Many international funds lean toward utilities and banks that won't benefit from the AI rally
- Valuation re-rating in EM and LATAM may not be supported by strong earnings growth
- Tariff and trade-policy uncertainty still poses downside risk if tensions re-escalate
- A resurgent dollar would reduce foreign-currency returns for U.S.-based investors
Bullish tickers
SK HYNIXSAMSUNG
SK HYNIX
Bullish
Plays into AI-driven semiconductor demand in Asia at a relative discount to U.S. AI darlings.
Bearish
Exposure to cyclical semiconductor demand and potential capital-expenditure risks could pressure returns.
SAMSUNG
Bullish
Incremental AI-related product and component demand positions it as a beneficiary of the AI theme.
Bearish
Large-cap exposure still tied to global hardware cycles and geopolitical risks in Korea.
People mentioned
Alistair PinderDonald Trump