From 2018 through 2024, Emerging Markets (EM) underperformed Developed Markets (DM) by 47% driven by a persistently strong dollar, China’s structural slowdown, and the dominance of US mega-cap technology. Since then, the recovery has been real but modest: a 9% outperformance in 2025 and roughly 15% year-to-date in 2026. That progress, while encouraging, has barely scratched the surface of the prior underperformance. The conditions that sustained the drawdown are now reversing, and the potential for EM to continue to outperform are there.
AI-related names account for roughly 40% of the EM market, concentrated in Taiwan and Korea. US hyperscalers are on track to spend close to $700 billion in capital expenditures this year, the majority directed toward AI infrastructure, and many of the hyperscalers source a significant amount of their supply from Asian EM companies. Asia AI hardware related companies have outperformed the Mag-7 by over 100% since the start of 2025, yet trades at a meaningful discount on a forward P/E basis relative to its US counterparts.
EM markets trade at 12x forward earnings versus approximately 20x for developed markets, a 37% discount, wider than the historical median and near record lows on a relative basis. Consensus expects EM earnings to grow 51% in 2026 and 19% in 2027.
Memory supply remains tight, and equities typically discount a worsening supply-demand balance six to nine months in advance, suggesting it is premature to turn cautious on Korean and Taiwanese names. China Tech adds a further layer of upside: the Chinese tech sector is down this year even as global tech is up significantly, and the domestic Chinese AI ecosystem is accelerating rapidly. In addition, a potential escalation of US-China tensions could be possible with President Trump’s recent visit to China.
Separately, a geopolitical de-escalation related to the Strait of Hormuz would benefit energy-importing EM economies (notably China, India, Korea, and Taiwan) disproportionately, as lower energy costs feed directly into improved terms of trade and expanded corporate margins.
The EM trade is not a single bet but a convergence of reinforcing catalysts: AI hardware supply chain dominance, dollar weakness, and a long overdue unwinding of extreme underweighting by global allocators. The EM recovery has further to run. We currently have our portfolios positioned with an overweight to EM for these reasons.
DISCLOSURES
The information provided is for educational purposes only. The views expressed here are those of the author and may not represent the views of Leo Wealth. Neither Leo Wealth nor the authormakes any warranty or representation as to this information’s accuracy, completeness, or reliability. Please be advised that this content may contain errors, is subject to revision at all times, and should not be relied upon for any purpose. Under no circumstances shall Leo Wealth be liable to you or anyone else for damage stemming from the use or misuse of this information. Neither Leo Wealth nor the author offers legal or tax advice. Please consult the appropriate professional regarding your individual circumstance. Past performance is no guarantee of future results.
This material represents an assessment of the market and economic environment at a specific point in time. It is not intended to be a forecast of future events or a guarantee of future results.
Investments in emerging markets may be more volatile and less liquid than investing in developed markets and may involve exposure to economic structures that are generally less diverse and mature and to political systems which have less stability than those of more developed countries.
Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices does not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends.
The MSCI Emerging Markets Index is a float-adjusted market capitalization index that consists of indices in 21 emerging economies: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.
