World beaters
Emerging markets are feeding the technology revolution
Despite the Iran conflict and soaring energy prices, emerging markets investment trusts have been delivering outstanding performance. The average investment trust in the AIC Global Emerging Markets sector has returned 69% over the past 12 months versus 23% for the average investment trust. And the average investment trust in the Global Emerging Markets sector has returned 62% over five years and 268% over ten years.
Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), said: “Many emerging markets are either exporters of energy, or home to some of the leaders in the technology revolution and are helping to power the astonishing growth in the AI sector. In other words, emerging markets are not just about cheap manufacturing anymore, they are global leaders in research, innovation and production at the cutting edge of this unprecedented AI hardware boom.”
“South Korean and Taiwanese markets have both been lifted by the AI boom due to increased demand for semiconductors and memory chips, while companies across Latin America have been supported by stronger commodity prices and increased demand for energy and resources.”
The Association of Investment Companies (AIC) asked the managers of global emerging markets investment trusts why their portfolios had performed so well, whether it could continue and what challenges they saw ahead. Their answers are collated below.
What has driven emerging markets’ outperformance this year?
Omar Negyal, Manager of JPMorgan Emerging Markets Dividend Income Trust, said: “Emerging markets have benefitted from a weaker US dollar and strong earnings growth, as well as investors looking to diversify away from concentrated US markets. Structural themes have also supported returns. For example, South Korean and Taiwanese markets have both been lifted by the AI boom due to increased demand for semiconductors and memory chips, while companies across Latin America have been supported by stronger commodity prices and increased demand for energy and resources.”
Jacqueline Broers, Co-Fund Manager of Utilico Emerging Markets Trust, said: “Emerging market performance has been supported by a favourable mix of macroeconomic and market factors. The ‘sell America’ dynamic under Trump's second term has accelerated capital rotation into non-US assets, which has helped drive a weaker US dollar (until recently). This has reduced a key headwind for emerging markets and further encouraged flows into higher yielding emerging market assets.
“Emerging market equities have also benefitted from lower valuations relative to developed markets. This valuation discount has helped attract capital from investors seeking value and diversification away from the US.”
“Headline emerging market performance has been supported by a combination of earnings growth and valuation rerating."
Hiren Dasani, Chief Investment Officer at Ashoka WhiteOak Emerging Markets Trust, said: “Headline emerging market performance has been supported by a combination of earnings growth and valuation rerating. Earnings upgrades in technology-heavy markets such as Taiwan and Korea have been driven by optimism around the AI supply chain and semiconductor demand. Importantly, despite the recent rally and relative outperformance versus developed markets, emerging market valuations continue to trade at a meaningful discount.”
Chetan Sehgal, Portfolio Manager of Templeton Emerging Markets Investment Trust, said: “Emerging market outperformance was predominantly driven by structural growth themes, with AI acting as the primary catalyst. Surging global demand for AI infrastructure fundamentally supported the asset class, given that Taiwan and South Korea house critical components of the global technology supply chain. These technological tailwinds were complemented by rising commodity prices, including gold and oil, which bolstered equity returns in South Africa and Latin American countries.”
What has done best in your portfolio and why?
Hiren Dasani, Chief Investment Officer at Ashoka WhiteOak Emerging Markets Trust, said: “Since inception as well as year-to-date, irrespective of underlying market conditions, stock selection rather than country or sector allocation has been a key driver of alpha generation for WhiteOak. Having said that, so far this year, performance in markets such as Taiwan, Mexico, Korea has helped, while from a sector perspective financials, technology and materials have done the best.”
Omar Negyal, Manager of JPMorgan Emerging Markets Dividend Income Trust, said: “A few markets and sectors have stood out. In Brazil, companies like Petrobras have benefited from stronger commodity prices, easing inflation and improving profitability. In China, meanwhile, we are seeing positive consumption trends, as well as an overall increase in quality companies with stronger capital discipline that are delivering better shareholder returns.
“Holdings such as Tencent and battery manufacturer CATL are both good examples of this, having benefited from continued AI-related demand and stronger earnings. From a sector perspective, financials – particularly banks – have performed well, benefitting from supportive interest rate environments and strong balance sheets.”
“Our best-performing markets, in the 12 months ending March 2026, were the technology-heavy countries of South Korea and Taiwan, driving substantial outperformance in the IT sector.”
Chetan Sehgal, Portfolio Manager of Templeton Emerging Markets Investment Trust, said: “Our best-performing markets, in the 12 months ending March 2026, were the technology-heavy countries of South Korea and Taiwan, driving substantial outperformance in the IT sector. By dominating essential semiconductor and hardware supply chains, these markets benefitted from strong demand for AI components.
“This was complemented by strong returns in Latin America, which benefited from stronger commodity prices and attractive starting valuations.”
Jacqueline Broers, Co-Fund Manager of Utilico Emerging Markets Trust, said: “Brazil has been a standout performer in our portfolio this year. The country’s relatively closed economy has partly insulated it from ongoing geopolitical noise, as Brazil’s energy and food security provide a natural hedge in today's volatile environment. In addition, in March the Brazilian Central Bank began its monetary easing cycle following a prolonged period of elevated interest rates, which supports markets.
“Brazil has been a standout performer in our portfolio this year. The country’s relatively closed economy has partly insulated it from ongoing geopolitical noise, as Brazil’s energy and food security provide a natural hedge in today's volatile environment.”
“Our second largest holding, a Philippine port company, International Container Terminal Services, has been a beneficiary of the volatile global environment, through trade rerouting to its diversified portfolio of emerging market container ports.”
What threats lie ahead?
Hiren Dasani, Chief Investment Officer at Ashoka WhiteOak Emerging Markets Trust, said: “In the near term, the major risks include higher oil and energy prices which will likely weigh on consumer sentiment, and supply chain constraints including shipping route disruptions.
“In the near term, the major risks include higher oil and energy prices which will likely weigh on consumer sentiment, and supply chain constraints including shipping route disruptions.”
“Any sharp reversal in the AI theme may lead to underperformance of tech-heavy markets like Taiwan and Korea. Our portfolio construction approach remains balanced, without disproportionate exposure to any single factor, theme or emerging technology. The sectoral and country exposures are an outcome of our rigorous bottom-up stock selection philosophy. Our investment philosophy is that outsized returns are earned over time by investing in great businesses at attractive valuations.”
Jacqueline Broers, Co-Fund Manager of Utilico Emerging Markets Trust, said: “A key threat to the strong performance in emerging markets (and developed markets) is a prolonged conflict in the Middle East that continues to restrict the free flow of oil. The US is also likely to face elevated inflation, potentially causing the US Federal Reserve to raise interest rates. This in turn, could strengthen the US dollar, weaken emerging market currencies and undermine the macro position of many emerging economies.
“Another risk that remains under the radar of many investors is the potential impact of El Niño on emerging markets. A strong El Niño could impact markets by increasing droughts in some countries, whilst causing flooding in others, damaging crops and disrupting agricultural output.”
Omar Negyal, Manager of JPMorgan Emerging Markets Dividend Income Trust, said: “We believe that escalating conflict in the Middle East is the biggest near-term risk for emerging markets. While higher oil prices may support exporters such as Brazil, this is putting significant pressure on oil-importing economies like India. We are also watching pockets of the AI and technology supply chain where valuations now look stretched after a very strong rally, leaving markets more vulnerable to volatility if sentiment turns.”
Chetan Sehgal, Portfolio Manager of Templeton Emerging Markets Investment Trust, said: “Potential risks for emerging markets include a possible delay in hyperscaler spending, which has been a major driver of AI investments. Rising energy prices are another challenge, hitting lower income, energy importing countries hardest by pushing up inflation and straining trade and government budgets. A lasting resolution of the Middle East conflict is important before we become positive on those markets.”
For further comments from the emerging markets investment trust managers, read our press release.
