AI capex fuels EM profit surge: South Korea, Taiwan lead 24% H1 return

Artificial intelligence is no longer just a developed-market story; it is now the engine behind a 24% first-half surge in emerging-market equities. HSBC’s latest report points to surging AI capital expenditure in South Korea and Taiwan as a direct profit catalyst, underscoring how the technology cycle is reshaping investment flows. Yet, the bank cautions that the next phase may reward a wider set of AI-adjacent sectors, opening up opportunities that extend far beyond the semiconductor giants.

HSBC's latest research report, released on July 19, 2026, delivers a compelling case for emerging-market equities to continue their strong performance through the second half of the year. The call is anchored in a combination of attractive valuations, easing inflationary pressures, and a broadening AI-and-technology investment cycle. In a global environment still grappling with supply shocks and sticky inflation, emerging markets have not only proven resilient but have decisively outperformed their developed-market counterparts—returning 24% in US dollar terms during the first half, more than double the return of US and ex-US developed equities. This outperformance is not speculative froth; HSBC attributes it to robust fundamentals: AI-related capital expenditure is driving corporate profits in Asian technology hubs such as South Korea and Taiwan, while firmer commodity prices are benefiting resource-rich Latin American economies.

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South Korea and Taiwan are now integral nodes in the global AI supply chain, while India is emerging as a manufacturing and services hub, and China’s policy stimulus is aimed at stabilizing its property and consumer sectors.

The valuation gap remains the most striking feature of the landscape. The MSCI Emerging Markets Index is trading at just 11.5 times forward price-to-earnings, a deep 34% discount to the 17.5 times multiple of global equities. This discount, combined with improving macro conditions, suggests the re-rating potential is significant. HSBC identifies India and China as two heavyweight markets that could see a stronger second-half performance, implying that the rally may extend beyond the tech-centric names that have led so far. The report cautions that while 'AI winners' will remain a key theme, the investable universe is set to broaden. Investors are increasingly scanning for companies and sectors beyond the technology complex that are positioned to capture the productivity gains and economic spillovers of artificial intelligence.

A crucial, if less heralded, shift underlined in the report is the evolving posture of central banks. Previously, concerns over elevated oil prices and geopolitical instability kept monetary policy in a hawkish frame. Now, the policy debate is pivoting toward the strength of economic growth and the resilience of corporate profits. This transition, if sustained, could ease financial conditions and provide an additional tailwind for emerging-market assets, which are typically more sensitive to global liquidity and risk appetite. The report does not dismiss the risks—inflation remains sticky and the global outlook uncertain—but it maintains a cautious pro-risk stance, favouring regions where growth is both accessible and structurally supported, particularly in Asia.