What's the read on China and emerging-market equities, and which names look most mispriced?

Emerging market (EM) equities have broadly outperformed the U.S. market, which has been one of the world's worst performers on a relative basis recently [2, 10, 15, 16]. This outperformance, however, is narrowly concentrated. The MSCI Global Emerging Markets index is dominated by just four countries , and its earnings growth is overwhelmingly driven by a few semiconductor and memory stocks benefiting from the artificial intelligence investment boom . Specifically, TSMC, Samsung, and SK Hynix are the top three holdings , comprise over a quarter of the index , and are driving **almost 70%** of its entire year-to-date earnings growth . Excluding these three chipmakers, the index's performance would fall to levels seen during a prior year's dip, highlighting the extreme narrowness of the rally and the emergence of a "K-shaped" global economy where nations with AI exposure thrive while others falter [17, 22].

Amid this landscape, a strong contrarian case is being made for Chinese equities, which are described as significantly undervalued and under-owned [3, 18]. Some analysts view China's public markets as the **cheapest major market in the world**, particularly when measured relative to growth . This has prompted recommendations to rotate out of overvalued U.S. technology stocks and into their Chinese counterparts [3, 29]. This perspective is bolstered by evidence of renewed capital flows from both hedge funds and retail investors into the Chinese A-share market, suggesting sophisticated investors are looking past headline geopolitical risks to find specific growth stories . A key distinction is made between mainland China's markets, which offer AI exposure through the GEM Index, and Hong Kong's market, which is weighed down by its concentration in real estate and banking [9, 14]. This bullish sentiment is tempered by the historical precedent that China's high GDP growth has not always translated into high equity returns .

The divergence within emerging markets necessitates a highly selective, country-specific approach over broad regional allocations [9, 28, 30]. Beyond the mega-cap chipmakers, opportunities are being identified further down the AI supply chain, such as in Japanese component manufacturers like Taiyo Yuden and Murata [7, 12]. A clear bifurcation in market outlooks is apparent: strategists favor buying Japan and South Korea on any pullbacks while actively shorting Indonesia due to currency weakness and a lack of reform [7, 28]. There is a notable tension regarding India; while some strategists find it unattractive due to high valuations [7, 30], J.P. Morgan maintains a bullish outlook for 2026, alongside Korea and Brazil . This fracturing demonstrates that macro factors like a strong U.S. dollar and high energy costs are impacting developing nations very differently, creating distinct winners and losers .