BlackRock upgrades emerging market equities to overweight

BlackRock has upgraded its recommendation for emerging market (EM) equities to overweight, citing strong fundamentals and the scarcity of resources related to artificial intelligence. The BlackRock Investment Institute noted that while the headline EM rally has diverse drivers, AI-related investment serves as a connecting thread.

Key regions identified include South Korea and Taiwan, which are central to semiconductor, memory, and hardware supply chains. Additionally, Latin American markets, including Brazil, provide the necessary physical infrastructure and resources for the AI buildout. Other resource-heavy markets mentioned include South Africa and the Middle East.

Despite higher global interest rates, strategists argue that robust corporate earnings growth can offset increased capital costs. BlackRock expects headline earnings per share for the MSCI Emerging Markets Index to grow by over 34% in the next 12 months, significantly outpacing the approximately 20% expected for the MSCI USA Index.