(Bloomberg) — Stock pickers seeking relief from the AI-fueled turbulence in global equities are zeroing in on opportunities in emerging markets.
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The growing angst over artificial intelligence has hit the main MSCI developing-country index hard, because chip giants SK Hynix Inc., Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. together account for almost 30% of the gauge. Those stocks dragged the benchmark to a seven-month low on Friday before recovering.
But looking beyond the AI trade, money managers say they’re seeing a chance to profit from rock-bottom valuations and high dividend yields in emerging markets, which by one metric are the cheapest since the global financial crisis 18 years ago.
“Just hogging three or four names and being really concentrated actually doesn’t work over the long term,” said Sat Duhra, a portfolio manager at Janus Henderson Investors. “There’s a whole bunch of other areas outside of AI that have worked really well, and that’s where we positioned.”
Duhra said Friday that he’s been adding higher-yielding stocks in China and Hong Kong, citing “improving payout discipline.” Although Hong Kong is classified as a developed market, a large share of companies listed there are domiciled in China. “We are not yet tempted to rebuild exposure to tech,” he said.
Other investors highlight South American utilities, Chinese and Taiwanese consumer-goods manufacturers, and eastern and central European financial firms as compelling alternatives to AI-exposed stocks.
The turmoil that hit equities last week, as fears grew that the Democrats’ sweep of US midterm elections could imperil the vast data center buildout underpinning artificial intelligence, left few markets untouched.
After the Nasdaq 100 Index tumbled 6.4% on Thursday, stocks in Japan, Korea and and Taiwan got swept along the following day. South Korea’s tech-heavy benchmark, which rallied in the first half as momentum-chasing retail investors piled in, sank to the lowest since March. Even Swiss stocks, notable for their limited exposure to AI, at one point fell the most in eight months.
At the same time, Friday’s dispersion of returns highlights how corners of emerging markets have been shielded from the AI fallout. Some 30% of stocks on the MSCI gauge rose on Friday, double the share of the S&P 500 that posted gains the day before, when it tumbled 4.4%.
