Goldman Sachs analysts Sunil Koul and Tarun Lalwani predict a continued rally in a basket of emerging market equities focused on "capital-intensive" industries, often referred to as HALO (heavy assets, low obsolescence) stocks. These companies, characterized by their significant infrastructure assets and high barriers to entry, have seen their earnings per share consensus expectations rise by 45% this year, a stark contrast to the flat earnings of "capital-light" stocks. This robust earnings momentum is expected to be a primary driver for their sustained outperformance.
Since late 2025, this basket of capital-intensive stocks in emerging markets has generated 115% returns, significantly outpacing the 7% gains from capital-light equities. Despite this strong rally, these HALO stocks are still trading at a 20% valuation discount compared to their capital-light counterparts. Sectors identified as most capital-intensive by Goldman Sachs include utilities, energy, and telecommunications, with over two-thirds of the companies in their capital-intensive basket hailing from China, South Korea, and Taiwan, including semiconductor manufacturers.
The investment thesis for HALO stocks is further bolstered by several macroeconomic trends. Geopolitical and energy security considerations are prompting strategic investments in these sectors, while a broader restructuring of global supply chains and a push for re-industrialization are also contributing. The massive investment required for the AI buildout, including the anticipated trillions of dollars hyperscalers will spend on data centers, is also a significant tailwind for these asset-heavy companies. Conversely, capital-light sectors like software and IT services face increased disruption risk from AI, dampening investor confidence in their long-term growth trajectory.
Goldman Sachs' chief global equity strategist, Peter Oppenheimer, echoes this sentiment, stating that the AI-driven boom in capital expenditures should lead to a sustained increase in demand for tangible assets and HALO stocks. The outperformance of capital-intensive stocks is not limited to emerging markets, with a similar trend observed in Europe, where Goldman Sachs' custom basket of European capital-intensive stocks (GSSTCAPI) has significantly outperformed its capital-light counterpart (GSSTCAPL). The analysts created a "Capital Intensity Score" for developing world stocks by blending six metrics, including fixed asset share and capital expenditure load, to identify these opportunities.
