Emerging market tech concentration is now as extreme as anything seen post-GFC — the EM index is effectively driven by just 3 companies, all in technology.
Excess Returns
Emerging market tech concentration is now as extreme as anything seen post-GFC — the EM index is effectively driven by just 3 companies, all in technology.
TL;DR
Ian Smith, portfolio manager at William Blair, breaks down why emerging markets offer a genuinely different opportunity set from US stocks. EM is not a monolithic trade — Korea and Taiwan dominate the AI supply chain [1] — Ian Smith "Within EM, Korea and Taiwan dominate the AI capex supply chain — foundries, memory, power equipment, and niche semiconductor components. Ch…" 13:05 , while India offers long-term demographic tailwinds despite elevated valuations [2] — Ian Smith "India has everything for long-term growth: young population, low income per capita, low credit penetration, pro-business government. But it…" 44:00 . Quality and growth have decoupled sharply in EM since 2020 [3] — Ian Smith "For most of 2013–2020, quality and growth moved together in EM. Since 2020, cyclical and physical-world companies have dominated while qual…" 29:18 , creating dispersion that active managers can exploit. The core takeaway: find good companies, buy them at good prices, and resist the urge to overcomplicate it [4] — Ian Smith "A weaker dollar or a more benign dollar creates the conditions in which we can have looser monetary and fiscal policy in emerging markets." 16:10 .
Ian Smith, portfolio manager at William Blair, discusses emerging markets, AI capex supply chains, quality vs. growth factor dynamics, the dollar's role in EM returns, and investment frameworks for China, India, Korea, and Taiwan.
Ian Smith explains why EM is not a homogeneous trade, covering the two distinct opportunity sets — AI supply chain leaders and domestic consumption S-curves — and notes EM's cheap valuation vs MSCI World. [1] — Ian Smith "Emerging markets span vastly different income levels, growth drivers, and political risks. Korea and Taiwan are high-income AI supply chain…" 02:30
Ian Smith explains why EM is not a homogeneous trade, covering the two distinct opportunity sets — AI supply chain leaders and domestic consumption S-curves — and notes EM's cheap valuation vs MSCI World. [1] — Ian Smith "Emerging markets span vastly different income levels, growth drivers, and political risks. Korea and Taiwan are high-income AI supply chain…" 02:30
EM represents 60% of global population, 40% of GDP, but only 11% of MSCI ACWI. Ian Smith explains structural drivers of this gap including informality, ROIC/WACC spreads, and Korea's value-up reforms. [1] — Host "EM = 60% global population: Emerging markets represent 60% of the global population, 40% of global GDP, yet only 11% of the MSCI All Countr…" 09:38
Ian Smith explains how every EM outperformance and underperformance cycle since 1987 has correlated with dollar weakness or strength, and why a benign dollar unlocks easier monetary and fiscal policy in EM. [1] — Ian Smith "Every EM outperformance and underperformance cycle since 1987 has coincided with a weak or strong dollar. A benign dollar allows EM policym…" 15:35
Ian Smith discusses how the AI capex buildout is reshaping EM indexes, why picks-and-shovels is still the right place in the cycle, and why the $750B capex trajectory implies an inevitable fade. [1] — Ian Smith "Six major tech companies will spend around $750 billion on AI capex this year, growing 80% year-over-year. Extrapolate that to 2030 and you…" 21:10 [2] — Ian Smith "Investors are confusing the flow of new equipment orders with the growing stock of equipment already installed. For long-duration power inf…" 24:15
Ian Smith describes how William Blair has escalated AI adoption over 6–9 months — speeding information gathering, supplementing financial modeling, and moving toward optimized token usage. [1] — Ian Smith "William Blair has dramatically escalated AI adoption over the last 6–9 months, using it to accelerate information gathering, supplement fin…" 26:17
Sponsor reads for Columbia Sportswear's Omni-Shade sun protection and State Farm insurance.
Ian Smith explains how MSCI EM quality and growth sub-indices diverged sharply post-2020 as cyclical and physical-world companies replaced intangible-asset platforms as market leaders, with a 20% gap in 2025. [1] — Ian Smith "For most of 2013–2020, quality and growth moved together in EM. Since 2020, cyclical and physical-world companies have dominated while qual…" 29:18
Ian Smith describes China's 'involution' dynamic, its manufacturing prowess (battery production lines over a kilometer long), and how companies expanding abroad earn much higher margins. [1] — Ian Smith "China's culture of 'involution' — hyper-competitive markets with abundant trapped capital and government-backed rivals — crushes domestic r…" 39:40
India offers the best long-term EM ingredients — young population, low credit penetration, pro-business government — but has underperformed EM by ~90% since September 2024 as the anti-AI trade. [1] — Ian Smith "India has everything for long-term growth: young population, low income per capita, low credit penetration, pro-business government. But it…" 44:00
Ian Smith walks through William Blair's three-pillar framework — quality, trajectory, underappreciation — explaining why trajectory and underappreciation drive returns while quality provides asymmetric downside protection. [1] — Ian Smith "William Blair seeks companies that are quality leaders, have improving trajectories (rising ROIC, expanding TAMs, strengthening moats), and…" 47:20
Ian Smith explains William Blair's 10% dollarized IRR hurdle, cross-checked against free cash flow yields and P/E ratios, and how forecasting above consensus signals underappreciation. [1] — Ian Smith "10% dollarized IRR hurdle: William Blair uses a 10% dollarized internal rate of return as their minimum investment hurdle when evaluating E…" 52:20
Ian Smith shares his contrarian preference for financial model discipline and his timeless closing lesson: find good companies, buy at good prices. Hosts wrap up with thanks and podcast contact details. [1] — Ian Smith "To keep it simple and to focus on trying to identify good companies and buying them at good prices — how you do that can be your own framew…" 1:00:21
Chapter 1 · 00:00
Ian Smith explains why EM is not a homogeneous trade, covering the two distinct opportunity sets — AI supply chain leaders and domestic consumption S-curves — and notes EM's cheap valuation vs MSCI World. [1] — Ian Smith "Emerging markets span vastly different income levels, growth drivers, and political risks. Korea and Taiwan are high-income AI supply chain…" 02:30
Emerging markets span vastly different income levels, growth drivers, and political risks. Korea and Taiwan are high-income AI supply chain plays; India is a domestic demand story; LATAM sits in between. Lumping them together misses the opportunity.
Technology now represents over 40% of the MSCI Emerging Markets index, making AI capex the dominant driver of EM performance.
Emerging market equities were broadly in the doldrums from 2010 until very recently, representing over 15 years of underperformance relative to US stocks.
EM offers two distinct opportunity sets: world-leading companies embedded in structural trends like the AI supply chain, defense, and power equipment; and domestic demand plays in underpenetrated markets riding S-shaped consumption curves.
Chapter 2 · 04:10
Ian Smith explains why EM is not a homogeneous trade, covering the two distinct opportunity sets — AI supply chain leaders and domestic consumption S-curves — and notes EM's cheap valuation vs MSCI World. [1] — Ian Smith "Emerging markets span vastly different income levels, growth drivers, and political risks. Korea and Taiwan are high-income AI supply chain…" 02:30
Despite recent outperformance, EM valuations relative to MSCI World remain about as cheap as they have been historically.
Since the eve of the Middle East war, the EM index has performed approximately in line with the S&P 500 at about 11%, while outperforming the MSCI World index.
Chapter 3 · 08:37
EM represents 60% of global population, 40% of GDP, but only 11% of MSCI ACWI. Ian Smith explains structural drivers of this gap including informality, ROIC/WACC spreads, and Korea's value-up reforms. [1] — Host "EM = 60% global population: Emerging markets represent 60% of the global population, 40% of global GDP, yet only 11% of the MSCI All Countr…" 09:38
Emerging markets represent 60% of the global population, 40% of global GDP, yet only 11% of the MSCI All Country World Index.
Within EM, Korea and Taiwan dominate the AI capex supply chain — foundries, memory, power equipment, and niche semiconductor components. China follows. Other markets offer only idiosyncratic pockets of exposure.
Chapter 4 · 13:16
Ian Smith explains how every EM outperformance and underperformance cycle since 1987 has correlated with dollar weakness or strength, and why a benign dollar unlocks easier monetary and fiscal policy in EM. [1] — Ian Smith "Every EM outperformance and underperformance cycle since 1987 has coincided with a weak or strong dollar. A benign dollar allows EM policym…" 15:35
Every EM outperformance and underperformance cycle since 1987 has coincided with a weak or strong dollar. A benign dollar allows EM policymakers to ease monetary and fiscal policy, boosting domestic growth — the most powerful driver of EM returns.
The MSCI Emerging Markets index has existed since 1987, providing nearly four decades of performance data covering two full outperformance and two underperformance cycles.
Chapter 5 · 18:37
Ian Smith discusses how the AI capex buildout is reshaping EM indexes, why picks-and-shovels is still the right place in the cycle, and why the $750B capex trajectory implies an inevitable fade. [1] — Ian Smith "Six major tech companies will spend around $750 billion on AI capex this year, growing 80% year-over-year. Extrapolate that to 2030 and you…" 21:10 [2] — Ian Smith "Investors are confusing the flow of new equipment orders with the growing stock of equipment already installed. For long-duration power inf…" 24:15
The 'fundamental stability' factor — a proxy for quality — has performed worse year-to-date in 2025 than at any point in MSCI EM history.
Six major tech companies will spend around $750 billion on AI capex this year, growing 80% year-over-year. Extrapolate that to 2030 and you get $8 trillion from just those companies. That can't happen — capex will fade, and investors need to be positioned for when it does.
The big 3 hyperscalers plus Meta, Oracle, and CoreWeave are expected to spend roughly $750 billion on AI capex in 2026, growing 80% year-over-year.
If current AI capex growth rates were sustained linearly to 2030 for just 6 companies, the cumulative spend would reach $8 trillion — which Ian Smith says is clearly unsustainable.
Investors are confusing the flow of new equipment orders with the growing stock of equipment already installed. For long-duration power infrastructure lasting 20–40 years, when the buildout ends, demand for new equipment can collapse to near zero even while the installed base keeps growing.
Chapter 6 · 24:17
Ian Smith describes how William Blair has escalated AI adoption over 6–9 months — speeding information gathering, supplementing financial modeling, and moving toward optimized token usage. [1] — Ian Smith "William Blair has dramatically escalated AI adoption over the last 6–9 months, using it to accelerate information gathering, supplement fin…" 26:17
William Blair has dramatically escalated AI adoption over the last 6–9 months, using it to accelerate information gathering, supplement financial model building, and turn analysts into coding experts. But the firm is now moving from experimentation to optimized, guardrailed token usage.
Chapter 7 · 28:30
Sponsor reads for Columbia Sportswear's Omni-Shade sun protection and State Farm insurance.
For most of 2013–2020, quality and growth moved together in EM. Since 2020, cyclical and physical-world companies have dominated while quality stocks lag. In 2025 the gap reached 20 percentage points — the widest ever.
Between 2020 and 2025, the MSCI EM Quality and Growth sub-indices diverged in performance direction in 4 out of 5 years, versus only 1 out of 8 years from 2013 to 2020.
In 2025, there was a 20 percentage point relative performance gap between the MSCI EM Quality and Growth sub-indices.
Chapter 8 · 33:18
Ian Smith explains how MSCI EM quality and growth sub-indices diverged sharply post-2020 as cyclical and physical-world companies replaced intangible-asset platforms as market leaders, with a 20% gap in 2025. [1] — Ian Smith "For most of 2013–2020, quality and growth moved together in EM. Since 2020, cyclical and physical-world companies have dominated while qual…" 29:18
EM's 12-month trailing performance dispersion is at its highest since the GFC — exceeding even COVID levels. That extreme dispersion is exactly the environment where active managers with the right analytical edge can generate alpha.
Quality investors' biggest trap is extrapolating historical financial strength into the future without testing whether the underlying qualitative attributes — management, moats, customer proposition — remain intact. AI will likely accelerate how many quality companies tip into decline.
Chapter 9 · 37:30
Ian Smith describes China's 'involution' dynamic, its manufacturing prowess (battery production lines over a kilometer long), and how companies expanding abroad earn much higher margins. [1] — Ian Smith "China's culture of 'involution' — hyper-competitive markets with abundant trapped capital and government-backed rivals — crushes domestic r…" 39:40
China's culture of 'involution' — hyper-competitive markets with abundant trapped capital and government-backed rivals — crushes domestic returns. But the same environment produces companies so battle-hardened they can compete and win anywhere in the world.
Chapter 10 · 42:00
India offers the best long-term EM ingredients — young population, low credit penetration, pro-business government — but has underperformed EM by ~90% since September 2024 as the anti-AI trade. [1] — Ian Smith "India has everything for long-term growth: young population, low income per capita, low credit penetration, pro-business government. But it…" 44:00
India has everything for long-term growth: young population, low income per capita, low credit penetration, pro-business government. But it's a net energy importer with no AI supply chain exposure — making it the anti-AI trade and punishing it with nearly 90% underperformance vs. EM since September 2024.
India's equity market has underperformed the broader EM index by almost 90% since approximately September 2024, largely reflecting prior overvaluation and EM's strong AI-driven rally.
Chapter 11 · 47:00
Ian Smith walks through William Blair's three-pillar framework — quality, trajectory, underappreciation — explaining why trajectory and underappreciation drive returns while quality provides asymmetric downside protection. [1] — Ian Smith "William Blair seeks companies that are quality leaders, have improving trajectories (rising ROIC, expanding TAMs, strengthening moats), and…" 47:20
William Blair seeks companies that are quality leaders, have improving trajectories (rising ROIC, expanding TAMs, strengthening moats), and are underappreciated relative to their outlook. Quality is not the return driver — trajectory and underappreciation are. Quality is the insurance.
William Blair's quality-growth EM process starts with an opportunity set of approximately 250 higher-quality businesses globally.
William Blair uses a 10% dollarized internal rate of return as their minimum investment hurdle when evaluating EM stocks.
Chapter 13 · 56:09
Ian Smith shares his contrarian preference for financial model discipline and his timeless closing lesson: find good companies, buy at good prices. Hosts wrap up with thanks and podcast contact details. [1] — Ian Smith "To keep it simple and to focus on trying to identify good companies and buying them at good prices — how you do that can be your own framew…" 1:00:21
Across every great investor Ian Smith has studied, one principle recurs: find good companies and buy them at good prices. In a world of relentless news flow and volatility, the hardest — and most valuable — thing is simply not to forget that.
No indexed bits in this chapter.
Six major tech companies will spend around $750 billion on AI capex this year, growing 80% year-over-year. Extrapolate that to 2030 and you get $8 trillion from just those companies. That can't happen — capex will fade, and investors need to be positioned for when it does.
Investors are confusing the flow of new equipment orders with the growing stock of equipment already installed. For long-duration power infrastructure lasting 20–40 years, when the buildout ends, demand for new equipment can collapse to near zero even while the installed base keeps growing.
This episode
Factual claims made this episode, and whether a source was named.
Technology now represents over 40% of the MSCI Emerging Markets index.
Since the MSCI EM index started in 1987, there have been two periods of EM outperformance and two of underperformance, each correlating with dollar weakness or strength.
The big 3 hyperscalers plus Meta, Oracle, and CoreWeave will spend approximately $750 billion on AI capex this year, growing 80% year-over-year.
If the current AI capex growth rate were sustained linearly to 2030, just 6 companies would accumulate $8 trillion in capital expenditure.
Emerging markets represent 60% of the global population, 40% of global GDP, but only 11% of the MSCI All Country World Index.
12-month trailing performance dispersion within MSCI EM is as high as it has ever been, equal to the level seen coming out of the global financial crisis and exceeding the COVID period.
The MSCI EM Quality sub-index and Growth sub-index moved in opposite performance directions in 4 out of 5 years from 2020 to 2025, versus only 1 out of 8 years from 2013 to 2020.
In 2025, the relative performance gap between the MSCI EM Quality and Growth sub-indices was 20 percentage points.
India's equity market has underperformed the MSCI EM index by almost 90% since approximately September 2024.
The 'fundamental stability' quality factor in MSCI EM is performing worse year-to-date in 2025 than at any point in the history of that factor.
William Blair uses a minimum 10% dollarized internal rate of return as its investment hurdle for emerging market stocks.
EM valuations relative to MSCI World are approximately as cheap as they have been historically, despite recent outperformance.
Alphabet's free cash flow margins have declined to negligible levels amid AI capex spending, with the company potentially needing equity capital raises.
This episode
Referenced as the originator of the 'growth at a reasonable price' (GARP) investing philosophy, which the host compared to William Blair's EM approach.
Ian Smith's employer, a global investment management firm running quality-growth EM strategies.
Cited as an example of a hyperscaler where free cash flow margins are declining, potentially requiring equity capital raises.
Cited as an example of China's advanced manufacturing quality, with hosts noting the value-for-money of its vehicles.
Listed as one of six AI infrastructure spenders in Ian Smith's capex calculation projecting ~$750B in 2026.
One of six hyperscalers cited in Ian Smith's AI capex calculation, expected to spend ~$750B combined by 2026.
The benchmark index tracking EM equities, now over 40% technology and discussed as highly concentrated.
The developed market benchmark; EM has outperformed MSCI World since the eve of the war and remains historically cheap relative to it.
Used as the US benchmark comparison for EM performance; EM has roughly matched S&P 500 returns since the start of the war.
The largest EM market, discussed for its advanced manufacturing, involution dynamics, geopolitical risk, and global expansion of Chinese companies.
Discussed as having compelling long-term growth drivers but currently underperforming EM by ~90% since Sept 2024 due to lack of AI supply chain exposure.
Cited as a leading EM AI supply chain market and an example of value-up corporate governance reforms reducing cost of capital.
Identified as a primary EM beneficiary of the AI capex supply chain, home to leading foundry companies.
Referenced as the destination of China's trade diversification away from the US as part of the broader deglobalization trend.
Cited alongside India as a market where companies are investing in data center capacity, offering idiosyncratic AI exposure outside Korea and Taiwan.
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