Nov 9, 2026 · 59 min
Value investors look beyond emerging markets’ AI concentration
The Emerging Markets Everyone Else Is Missing
The episode examines whether benchmark-heavy exposure to semiconductor leaders disguises broader opportunities—and risks—in emerging markets.
- 1Emerging-market indexes have gained largely through concentrated semiconductor exposure, leaving investors vulnerable to cyclical and crowded AI trades.
- 2A bottom-up deep-value process searches the cheapest stocks across countries and sectors while testing for governance, obsolescence, and bankruptcy risks.
- 3The managers find potential in Mexico, Brazil, China, South Africa, ASEAN, and frontier markets, but insist valuation must compensate for uncertainty.
Don't miss
The managers challenge the idea that China is uninvestable, arguing that benchmark-related selling has created weakness in Chinese technology despite improving cash generation and shareholder returns.
The brief
Vera German and Juan Torres of Neuberger Berman argue that emerging-market indexes can offer less geographic diversification than investors expect, because recent gains have centered on a few semiconductor stocks.
TSMC, Samsung, and SK Hynix sit at the center of the debate: their AI exposure may be powerful, but their cyclicality and crowded valuations could amplify a downturn.
Rather than forecast dozens of economies, the managers screen for the cheapest stocks and diversify across countries, sectors, and different forms of value—while accepting that some bets will fail.
Their portfolio looks far from the AI trade, with contrarian opportunities in Mexican consumers, Brazilian mining, South African retailers, China, ASEAN, and frontier markets.
China is presented not as automatically uninvestable but as a possible value opportunity, while India remains too expensive for the strategy despite recent declines.
The broader takeaway is that market leadership will rotate: today’s cheap areas may reprice, and even expensive AI leaders could eventually qualify if valuations fall far enough.
What was said on this episode
37 statements · 18 positive · 13 negative · 1 mixed · 5 neutral
Neuberger’s portfolio is currently among the market’s least exposed to AI.
“We have at the moment one of the most anti-AI portfolios that you can find in the market.”
Listen at 1:43
Most emerging-market countries are flat or down in US-dollar terms.
“the vast majority of countries on US dollars are actually either flat or down”
Listen at 5:23
The concentrated emerging-market benchmark could be quite risky.
“it could potentially be quite risky”
Listen at 5:50
Samsung, TSMC, and SK Hynix operate highly cyclical businesses.
“All of those businesses are very cyclical in nature.”
Listen at 6:32
The current semiconductor cycle will eventually end.
“at some point the cycle will come to an end”
Listen at 8:20
AI has already changed the world.
“AI is an amazing technology. It has already changed the world.”
Listen at 8:34
Concentrated emerging-market index drawdowns have become progressively larger.
“those drawdowns become larger and larger and larger”
Listen at 10:14
Current AI-driven emerging-market sentiment swings are unlikely to be sustainable.
“we don't believe they're particularly sustainable”
Listen at 10:41
Asian semiconductor stocks correlate more with US semiconductors than domestic emerging-market assets.
“TSMC and Hynix and Samsung are much more closely correlated in performance to Micron and Broadcom and all the big US semiconductor names than they are to their own domestic banks or to any other EM assets.”
Listen at 11:19
MSCI EM currently does not provide broad diversification or exposure to underlying EM drivers.
“That is not at all what you get today with MSCI EM.”
Listen at 12:08
Korea and Taiwan should remain classified as emerging markets.
“I think those risks justify them remaining emerging.”
Listen at 12:43
Emerging-market equities remain among the market’s most inefficient asset classes.
“EM equities is still one of the most inefficient asset classes that remain in the market.”
Listen at 14:36
Emerging-market inefficiency creates more room for price discovery and alpha generation.
“there is more room for price discovery and alpha generation”
Listen at 14:51
Investors should demand compensation for emerging-market allocation risks.
“you should always, always demand compensation for underwriting the risk of allocating capital to many of these places”
Listen at 16:15
Neuberger sources 85% of ideas from the cheapest market quintile.
“85% of every single idea that we look at comes from the cheapest quintile of the market.”
Listen at 16:35
Neuberger considers every asset potentially investable at a sufficiently low price.
“no asset is uninvestable for us”
Listen at 22:00
Value investors inevitably make investment mistakes.
“you have to be ready that you will get things wrong”
Listen at 23:17
Non-AI emerging-market assets have broadly sold off over six months.
“Pretty much everything that is not AI-related has been selling off.”
Listen at 26:25
Neuberger prefers holding approximately 40 to 45 stocks.
“we like to be concentrated around 40, anywhere between 40 and 45”
Listen at 27:03
Neuberger typically holds stocks for three to five years.
“We hold stocks for 3 to 5 years”
Listen at 28:42
Neuberger does not trade based on macroeconomic conditions or elections.
“we never trade on macro or on elections”
Listen at 29:24
CSN Mineração trades at distressed valuations because of leverage at its parent company.
“the reason why the iron ore company that has nothing to do with that is trading at distressed valuation levels, just because of what's happening with the parent company”
Listen at 33:13
CSN Mineração offers distressed pricing despite limited direct exposure to parent-company problems.
“then you are paying distressed prices for an asset that has nothing to do with that situation directly, at least.”
Listen at 33:45
CSN Mineração should rerate if its holding company reduces balance-sheet pressure.
“then you should get a rerating”
Listen at 33:53
Emerging-market cyclicals are currently expensive while staples are cheap.
“we today find ourselves in a situation where cyclicals are expensive and staples are cheap”
Listen at 35:44
China’s slowing economy does not make it uninvestable; investors should adjust models.
“Doesn't mean it's uninvestable, just means you have to adjust your numbers in your models.”
Listen at 40:25
Chinese technology is currently an attractive investment area.
“we think that Chinese tech is a very interesting space today”
Listen at 42:53
Chinese companies’ current valuations look attractive relative to their history.
“those valuations relative to what those companies have done in the past look attractive”
Listen at 44:07
Alibaba and Tencent improved free cash flow and adopted dividends and buybacks.
“free cash flow generation as a result has improved, and they have instituted shareholder-friendly policies in terms of dividends and buybacks.”
Listen at 44:55
Indian business valuations must fall further before Neuberger will invest.
“They still need to come down more for us to be interested in Indian businesses.”
Listen at 46:59
Frontier markets trade at roughly a 23–24% discount to headline emerging markets.
“It trades on index level at about 23 or 24% discount to headline EM”
Listen at 49:28
Vietnam will probably be reclassified as an emerging market in 2027.
“Vietnam is gearing up to be reclassified into EM. That is possibly, probably going to happen in 2027.”
Listen at 50:29
Neuberger’s portfolio currently allocates almost 10% to frontier markets.
“today the portfolio has almost 10% in frontier”
Listen at 50:48
Indonesia is currently an attractive market for capital allocation.
“we think that given where the valuations are, that's a very interesting market to allocate capital to at the moment.”
Listen at 53:35
Today’s cheap emerging-market assets probably will differ from five years’ cheap assets.
“the things that are cheap today probably will not be the same things that will be cheap in 5 years' time”
Listen at 54:13
Emerging-market market leadership changes continually.
“that leadership of the market changes all the time”
Listen at 54:46
Neuberger will not accept current risks at current prices for AI leaders.
“we are unwilling to underwrite those risks at those prices”
Listen at 55:01
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.
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