BlackRock's research team, including Wei Li, says AI investment is set to raise the value of constrained resources and support earnings. As they put it, "AI-related investment can support growth and profits even as the same investment boom absorbs capital, power and other scarce resources." The call reverses a June downgrade to neutral that flagged risk concentration around AI and leverage, particularly in South Korea. Since then, deleveraging in Korean stocks after a sharp July selloff helped pave the way back to overweight. Emerging market stocks have also bounced off their summer lows.
The firm points to a favorable earnings and valuation setup. Looking ahead to the next year, consensus expects earnings for the MSCI Emerging Markets Index to climb above 34%, while the MSCI USA Index is seen at about 20%. On price tags, EM stocks change hands at roughly 10x forward earnings, about half the US market's multiple - essentially a 50% discount. The team also sees a softer dollar and better capital flows adding support as investors revisit EM after recent volatility.
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This call still has to clear some hurdles. BlackRock notes the thesis depends on stronger earnings and cheaper entry points offsetting headwinds from higher rates, pricier crude and geopolitical tensions. Or as the note puts it, "The bar for taking risk is rising as rates reset higher, making the durability of earnings more important." The strategists added, "The numbers reinforce the case for returning to EM equities," and "EM equities now offer another place where earnings can clear that higher hurdle."
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