‘Delta Electronics: quality that grows with artificial intelligence’
“Among others, favourite stocks also include Aspeed, a specialist in server chips, and the South African bank Capitec”
Key points
Artificial intelligence remains one of the main drivers of emerging markets, but the opportunities extend beyond semiconductors. Nick Payne, an analyst and fund manager of Comgest’s Comgest Growth Emerging Markets fund, also sees scope for companies capable of capitalising on growth across the technology value chain and in sectors such as consumer goods, finance and healthcare. However, the selection process remains strictly bottom-up, with the focus on high-quality companies, sustainable competitive advantages and long-term earnings growth. Among the fund’s favourite stocks are Delta Electronics, Aspeed and Capitec.
Emerging markets are enjoying a positive spell: what are the main drivers of growth?
Three semiconductor companies — TSMC, Samsung Electronics and SK Hynix — have accounted for a significant proportion of the gains made this year by the MSCI Emerging Markets Index, buoyed by strong demand for artificial intelligence chips. Emerging markets are home to world-class technology hardware suppliers. Added to this are favourable capital flows, a weaker dollar and greater visibility on the asset class’s earnings. These are all factors that could underpin a genuine re-rating of emerging markets.
Is the AI-driven rally set to spread beyond semiconductor manufacturers?
We believe so, but in a selective way. The next phase will not only involve those who produce the most advanced chips, but also those who manage to capture value further down the artificial intelligence value chain. Think of cloud infrastructure providers, enterprise software companies that integrate AI into existing workflows, and consumer platforms capable of monetising the engagement generated by artificial intelligence. The phenomenon is still in its early stages and, for the time being, hardware manufacturers are likely to continue to capture the lion’s share of profits.
Do the new US tariffs and very high energy costs risk slowing this growth, or could they create new winners?
The rise in US tariffs and energy costs is creating headwinds, but the impact is not uniform. Manufacturing companies that are heavily export-oriented and have narrow margins are the most exposed. At the same time, however, this period of disruption is reshaping supply chains and may create new winners. Some countries and companies may gain market share by diversifying their production away from China. Domestic market leaders may also benefit from domestic markets that are becoming relatively more attractive as global trade becomes increasingly fragmented.
Do a strong dollar and high US interest rates still pose the main risk to emerging markets?
The weakening of the dollar and the prospect of further interest rate cuts in the United States have been favourable factors over the past year, as they have eased financing conditions and supported emerging market currencies. However, the war in Iran has interrupted this trend. We believe that, in the medium term, the dollar is likely to remain on a downward trend. That said, we do not base our investment strategies on currency or interest rate forecasts, which remain difficult to predict. Our focus remains on corporate fundamentals. A stronger dollar would be an obstacle, not a sufficient reason to abandon a sound investment thesis.
