The Emerging Markets Everyone Else Is Missing

SK Hynix

Across the shows: 7 speakers in other episodes, 4 bullish and 2 bearish calls, past 30 days

• Juan Torres · Neuberger BermanUncertain

  SK Hynix is an extremely cyclical business, so investors must watch the price paid against cycle risk.

  Juan acknowledges SK Hynix is having an amazing year and that the stock cannot be argued against on performance. However, he notes it has never been deemed a high-quality compounder that everyone loves, and that it operates in what is arguably the most cyclical business in the world. The market is debating how long the cycle lasts and when it turns. Juan says investors need to be aware of the prices they pay and the expectations embedded in valuations, and believes timing the cycle is very dangerous.

  “One needs to remember that SK Hynix, has never been deemed to be a high quality company compounder that everyone loves... it operates in what humankind has seen to be one of the most cyclical, if not the most cyclical business that you can find in the world.”at 6:23

CSN Mineração

• Juan Torres · Neuberger BermanBullish

  CSN Mineração trades distressed due to parent's leverage; should rerate as the parent restructures.

  CSN Mineração is the iron ore unit of a family-controlled group whose holding company CSN SA is highly levered. The mining unit generates about 50% of group EBITDA and has almost no leverage and good management. Its distressed valuation is driven by the holdco's leverage, not its own fundamentals. The holdco is renegotiating debt, issuing longer-dated bonds and selling businesses, including a recent cement bid. If the group unlevers, the iron ore unit should rerate. Iron ore is in a soft cycle, but the position is treated as a special situation unrelated to Brazil's elections or fiscal picture. The fund holds it as one of its favourite positions.

  “...the reason why [the iron ore company] is trading at distress levels is because there's a lot of leverage on the whole Holco company and the capital markets have been putting a lot of pressure on the family and the management...”at 30:01

Uzbekistan National Investment Fund

• Vera German · Neuberger BermanBullish

  Uzbekistan fund gives early equity access to state firms, with Franklin Templeton-led governance and high dividends.

  The London-listed fund packages 13 Uzbek state-owned enterprises, run by Franklin Templeton, which improves governance, adds independent directors and helps commercial operations, such as getting utilities regulation passed through so they run on a commercial basis. The companies will be listed over time and pay high dividends, giving NAV growth, income and value realisation. Franklin Templeton has run the same model in Romania since the early 2000s. Equity investors usually reach frontier markets only much later, so this gives early entry before liquidity develops.

  “With Usnif, we as equity investors are getting in at a very early stage in the development of that country, and, we think it's a fascinating stock.”at 49:15

Equity Group Holdings Plc

• Juan Torres · Neuberger BermanBullish

  Equity Group is a well-managed Kenyan bank with strong returns on equity, trading at attractive prices.

  Juan describes Equity as one of Kenya's largest banks and says it is very well managed with very good returns on equity. The stock trades at very interesting prices. The fund has owned it for a few years and holds it as a core frontier-market position.

  “it's a very good bank, very well managed, with very good returns on equity, trading at very interesting prices.”at 49:36

International equities

• Juan Torres · Neuberger Berman

  EM index gains come from a few AI-linked chip stocks in two countries; most other EM markets are flat or down.

  Juan argues the perception that emerging markets did well this year is misleading. The asset class's performance is driven by a handful of companies (Samsung, TSMC, SK Hynix) in one sector, one theme, and two countries. Most countries in the benchmark are flat or down in US dollars, so the index performance reflects a narrow, thematic, crowded trade that could be quite risky given the cyclical nature of those businesses.

  “There's this perception that the asset class has done very well, but, it's not the asset class, it's not people buying EM in general, it's basically the asset class very concentrated in a few company names in two countries in one specific sector in one theme.”at 4:45

• Vera German · Neuberger Berman

  Past EM concentration peaks were followed by drawdowns that grew larger each time; the swings are unsustainable.

  Vera compares the current concentration with earlier episodes: 2011, when the top 10 EM index components (Gazprom, Vale, Petrobras) were about 16% of the benchmark during the commodity super cycle, and 2020, when Chinese tech made up roughly 28-29% of the top 10. Each episode was followed by a severe index drawdown, and the drawdowns have grown larger each time. She sees this as rational behaviour, with people getting carried away on the way up and the way down, and does not think the current sentiment swings are sustainable.

  “What also unites these episodes is there is a subsequent period of index drawdown, is quite severe. With every one of those episodes, those drawdowns become larger and larger and larger. But we think that from a behavioral standpoint, this is perfectly rational.”at 10:03

• Vera German · Neuberger Berman

  EM's top chip holdings track US semiconductors, so the index isn't genuine EM diversification.

  Vera argues that TSMC, SK Hynix and Samsung move much more closely with Micron, Broadcom and other big US semiconductor names than with domestic banks or other EM assets. Investors who buy EM to diversify away from developed markets therefore get the same risks they already hold elsewhere, and arguably not EM exposure per se. A benchmark is meant to be a diversified index giving different countries, sectors and EM drivers, which MSCI EM does not currently do.

  “from whatever developed markets offer them. 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.”at 11:13

• Juan Torres · Neuberger Berman

  Non-AI emerging stocks have sold off, leaving rich value opportunities across countries and sectors.

  Juan says the crowded AI trade has absorbed capital, which means something else has been sold to fund it. As a result the team's opportunity set over the last six months has been extremely rich and spread almost everywhere. Examples include consumer discretionary in Mexico, distressed mining in Brazil, fashion retailers in South Africa, ASEAN, Indonesia, China across market caps and special situations in Korea. Pretty much everything that is not AI related has been selling off.

  “But when capital follows a very crowded trade, it means that something else needs to be sold so that you can buy that new thing... pretty much everything that is not AI related has been selling off.”at 24:08

• Vera German · Neuberger Berman

  EM staples now trade near 10x earnings while cyclicals and materials have rerated to expensive levels.

  The old pattern was that EM cyclicals and materials were cheap across the board, while staples were expensive as the favourite way to play the growing EM middle class, at 35 times earnings or more. That relationship has reversed through 2025 and into 2026. Commodity cyclicals have rerated as investors bet on a new super cycle or stockpile, making good value harder to find. Staples have fallen to around 10 times earnings without earnings deteriorating; the change reflects sentiment and the multiple investors will pay.

  “...the staple stocks for the first time in a really long time have come down. Some of those stocks are trading on sort of 10 times earnings... we today find ourselves in a situation where cyclicals are expensive and staples are cheap.”at 32:38

• Vera German · Neuberger Berman

  Chinese tech is attractive; index-driven selling creates dislocations that reverse when the AI trade weakens.

  Benchmark-aware managers must keep buying Samsung, SK Hynix and TSMC as their index weights rise, and fund those purchases by selling big liquid index names. Big Chinese tech stocks and Indian banks like HDFC and ICICI fall 7-9% on no news because of this flow pressure. China is a primary victim of that liquidity drain, but on days the AI trade weakens the trend reverses. Vera therefore sees Chinese tech as a very interesting space and her fund is fairly heavily exposed to it.

  “But we have seen on the days when the AI trade is weaker, that trend reverses.”at 39:28

• Juan Torres · Neuberger Berman

  China is now attractive on valuation after being one of the most expensive markets six years ago.

  Six years ago, when the strategy launched, China was one of the most expensive markets in EM and in the world, so the fund carried a significant underweight. Today the fund has a significant allocation because valuations now look attractive relative to what those companies have done in the past. Investor sentiment is weighed down by a very weak macro cycle and a weak consumer. Juan's time horizon is three to five years, and at these prices he thinks the odds favour a good outcome.

  “the fact that we have a significant allocation to China today is just a function of the fact that as a market, it's an interesting market from a valuation point of view.”at 39:55

• Juan Torres · Neuberger Berman

  India is still too expensive and AI is disrupting its core industries; wait for lower prices.

  Juan says India sits on the wrong side of the AI trade because it has no big tech companies driving AI, and AI is disrupting the industries that made India great. Indian equities have come down with the AI worry but from very high valuations, so they are not yet attractive. The fund has never owned an Indian business. It has done work on IT consulting names and will buy them if they fall further to a level where it is compensated for the risk.

  “They still need to come down more for us to be interested in Indian businesses.”at 43:42

• Vera German · Neuberger Berman

  Frontier markets are cheap, under-owned and gaining momentum, with discounts near a decade-wide high.

  Frontier trades about 23-24% below headline EM, almost the widest discount in ten years, and EM managers hold about 1.2-1.3% of portfolios versus about 1.7% for EM. Companies there are operationally and financially doing well but carry about half the price tags of similar EM names, such as a Kenyan bank or a Vietnamese staples company. Vietnam is likely to be reclassified into EM in 2027, and Nigeria is becoming investable after sorting out capital controls. Her fund holds almost 10% in Frontier, its highest allocation ever.

  “And so we like Frontier because it's cheap and we like it because it's starting to get some really interesting momentum.”at 45:47

• Juan Torres · Neuberger Berman

  Philippines looks very attractive, with many valuation-driven stories, especially after the Middle East conflict.

  Juan says the Philippines has looked very attractive this year, especially since the conflict in the Middle East began. He points to many interesting valuation-driven stories in the market. He gives no company examples and does not say the fund holds the market.

  “Philippines has been looking very attractive, especially this year, especially after the the start of the conflict in The Middle East.”at 49:47

• Juan Torres · Neuberger Berman

  Indonesia is a very interesting market to allocate capital to, given its current valuations.

  Juan calls Indonesia the most difficult situation to find today, but says the fund owns it and is following it very closely. Given where valuations sit, he thinks it is a very interesting market for allocating capital at the moment, despite the uncertainty.

  “And we think it's very interesting, and and we are following the situation very closely. And we think that given where the valuations are, that's a very interesting market to to allocate capital to at the moment.”at 50:16

Emerging markets

• Vera German · Neuberger Berman

  Mexico's cheap consumer stocks should rerate as tariff-hit consumer sentiment mean-reverts.

  Mexico screened expensive for a long time, but tariff uncertainty from the trade war has hurt sentiment and the GDP outlook, which has hit consumer confidence. The companies they look at have underlying exposure to consumer sentiment, which they expect to mean-revert, and they also have company-specific issues adding to the valuation discount. They hold stocks for three to five years and set clear rerating scenarios at purchase.

  “The beginning of the sort of trade war and all the tariff uncertainty has definitely hurt Mexico, hurt sentiment... all of that has hit consumer confidence. So the companies that we were looking at... have an underlying exposure to consumer sentiment that we hope and assume will at some point mean revert.”at 26:22

• Vera German · Neuberger Berman

  Brazilian equities look cheap in aggregate after local flight and foreign fiscal worries depressed valuations.

  With real interest rates very high, local investors moved out of Brazilian equities into sovereign debt yielding around 15%, which removed a steady source of domestic equity demand. International investors worried about fiscal sustainability and the currency. Together these depressed Brazilian valuations, which Vera describes as fairly depressed, and she says the market is wide with plenty of choice. The fund has a significant portion invested in Brazil.

  “For quite some time with the real rates where they are, the locals fled Brazil on the equity side... International investors had concerns about fiscal sustainability, about the currency. And so all of those things together meant that valuations in Brazil have been fairly depressed.”at 28:29

AI bubble & tech valuations

• Juan Torres · Neuberger Berman

  Investors couldn't spot the July or October AI-trade unwinds in time; timing the cycle is impossible.

  Juan accepts that AI is an amazing technology that has already changed the world, but argues that investors are not able to act before the prices fall. When the AI trade unwound in July, people did not spot it before prices came down, and something very similar happened in October without being foreseen. Because timing the market is extremely difficult, if not impossible, and very dangerous, he says investors should be aware of these risks.

  “AI is an amazing technology. It has already changed the world. But in July, when there was an unwind of the AI trade, were people able to spot that and act before prices were coming down? I don't think that they were. And now something very similar happened in October and they didn't see it coming.”at 8:31

US–China relations

• Vera German · Neuberger Berman

  Taiwan worries don't make China uninvestable; avoiding China while owning TSMC is incoherent.

  Vera argues China's politics have been hairy for years and the change since ten years ago hasn't been dramatic, so a market investable then should still be investable now. A slowing economy just means adjusting models. She calls out the inconsistency of investors avoiding China over Taiwan risk while their biggest stock position is TSMC, which is itself in Taiwan. Her fund has a significant portion of its portfolio in China, which she sees as a very inefficient market.

  “if you are keeping away from a very large market because you worry that China and Taiwan will have an altercation of some kind, at the same time, your biggest stock position is in Taiwan, it just doesn't make sense.”at 37:44