BlackRock has shifted its stance on emerging market (EM) equities, upgrading them to an "overweight" recommendation. This decision is largely influenced by the critical role EM countries, particularly South Korea and Taiwan, play in the artificial intelligence (AI) supply chain, specifically in semiconductors, memory, and hardware. Latin American markets also offer exposure to commodities and infrastructure vital for AI development.
According to BlackRock strategists, including Wei Li, growing investment in AI is expected to boost the value of these constrained resources and support corporate profits. The firm previously moved to a neutral position on EM equities in June due to leverage concerns, especially in Korea, but subsequent deleveraging has eased these worries. Earnings growth in EM is a significant factor, with the MSCI Emerging Markets Index expected to see over 34% earnings per share growth in the next 12 months, compared to about 20% for the MSCI USA Index. Despite this stronger growth, EM equities trade at roughly 10 times forward earnings, representing a 50% discount compared to the nearly 20 times for U.S. counterparts.
BlackRock's Q3 2026 Equity Market Outlook highlights that much of the earnings strength in EM comes from northern Asia, with Taiwan's earnings forecast to grow by 34% in 2026 and South Korea's by an impressive 220%. This is primarily attributed to the significant AI investment from large U.S. tech companies, with cumulative spending estimated to reach $10 trillion by 2030. These investments are flowing to Asian manufacturers of essential semiconductors and their supply chains. BlackRock also notes a projected memory demand exceeding supply by 20%-30% for at least two years, indicating long-term earnings growth for companies in this sector. While a weaker U.S. dollar could provide additional support, BlackRock's bullish outlook on EM equities is not dependent on it.
