Emerging market equities are up about 22% in 2026 through early September against 13% for the MSCI World Index, measured in dollars.
The standard objection is that the gain is a narrow one — North Asian semiconductor and hardware makers riding artificial-intelligence spending, and nothing else. Zhikai Chen's answer is that the concentration is built into the index by design, and that Latin America has been outperforming as well.
"However, I don't think this is a bug. This is actually a feature of the regional indices."
Chen runs emerging market equities globally for BNP Paribas Asset Management, so the allocation question the host puts to him is the one his own funds have to answer.
I listened to the full episode so you can skip it.
Here are the 4 arguments that matter.
👤 Guest: Zhikai Chen, Global Head of Emerging Market Equities at BNP Paribas Asset Management
🎙️ Host: Daniel Morris, Chief Market Strategist at BNP Paribas Asset Management
📰 Published: 10 September 2026, on the Talking Heads podcast (BNP Paribas Asset Management)
🟣 Apple Podcasts | 🔗 Episode page | ⏱️ 9 min
Key Takeaways
Emerging markets have beaten developed markets since 1999, not only in the last two years
Chen says the recent run is a large part of it, but not the whole record
Information technology is more than 35% of both the emerging market and the US benchmark, so a technology-led gain is what the index is built to produce
Latin America has outperformed the US, Europe, Japan and the MSCI World Index over the last two years
Chen: "So, this is not purely a hardware story"
Hyperscaler capital spending of roughly $860 billion in 2026 is expected to pass $1 trillion in 2027, and emerging market suppliers are where it lands
The three emerging market companies he rates most highly are projected to earn roughly $300 billion of free cash flow this year
He is not claiming the AI spending will earn a return — only that it is already converting into cash for the companies selling into it
High bandwidth memory for AI chips is eating the wafer supply that used to go into ordinary memory, which he says holds the shortage open for at least 12 months
1. EM Has Led Since 1999
Daniel Morris opened with the performance record rather than the argument, and with a caveat about how uneven it has been.
The show's own framing: emerging markets had a bad decade, then turned. Morris said performance relative to developed markets went through a rough patch from 2010 for several years before reversing over the last few years
His figures for 2026, read at the guest rather than claimed by him: as of early September, emerging market equities were up about 22% against 13% for the MSCI World Index in dollar terms. Morris added that an investor still has to differentiate by country or by sector
Morris said some investors remain underweight, unconvinced the outperformance can last. That set up the question he actually asked: how should investors be allocated to emerging market equities?
Chen's first move was to lengthen the measuring period. He accepted that performance is volatile over shorter windows, because emerging market investing sits higher on the risk-reward spectrum by nature, then said that in dollar terms and against the MSCI World Index — the United States, Europe and Japan — emerging markets as a region have outperformed since 1999. He did not dispute that a big part of that record came in the last couple of years
The recent margin has been wide and repeated. Year to date the region had outperformed by double digits, and Chen said it outperformed by double digits in 2025 as well
His claim is that the outperformance has more than one source. Most investors know emerging markets as the world's economic growth engine and as an outsized share of global resource supply; Chen said they are less attuned to the dynamism and competitiveness of its manufacturing and, increasingly, knowledge-based industries, which is what is now driving corporate returns
The allocation conclusion, in his words: "EM in my view is too large and now too critical for equities investors to be underexposed to it"
2. Not Just North Asia
Chen's second point was about where inside emerging markets the gains have come from, because it is the part he thinks investors have wrong.
Attention has gone almost entirely to North Asia. That is where the semiconductor and technology hardware businesses are, and it is what most investors picture when they hear that emerging markets have outperformed
Latin America has outperformed the same developed market benchmarks over the last two years — the US, Europe, Japan and the MSCI World Index, on Chen's account
His conclusion was blunt: "So, this is not purely a hardware story. It's about the diversity of the gains that you could have by having some parts of your investment in emerging markets equities, in my view"
Morris accepted the point and folded it into his follow-up question, acknowledging that Latin America had been a contributor as well before asking whether the outperformance could be sustained over a longer horizon
3. Tech Weight Is A Feature
Asked whether the run can last, Chen took on the concentration critique directly rather than arguing around it.
He called sustainability "probably the trillion-dollar question" before setting out the objection he hears: that the recent performance in emerging markets is very concentrated in technology
His answer was that the concentration is structural, not accidental. "However, I don't think this is a bug. This is actually a feature of the regional indices." Emerging markets share a similarity with the US equity market in that information technology is a large part of the benchmark — above 35% in both
If technology is that big a share and technology earnings are growing much faster, the outperformance follows arithmetically. Chen said emerging market outperformance driven by much faster earnings growth concentrated in technology companies should not be a surprise
He set the harder question aside rather than answering it. Whether the AI capital expenditure now underpinning those earnings will earn a decent return on the money invested is, he said, probably beyond the scope of the conversation
4. $860B Lands In EM Cash
This is the mechanism behind Chen's case, and the only part of the episode where he put numbers on it.
Emerging markets' position in the AI build-out is as the supplier, not the spender. Their key advantage, Chen said, is being what he calls the "picks and shovels" of the spending — the equipment and components sold to the companies doing the building
The year-to-date tally he gave for hyperscaler capital spending is roughly $860 billion in 2026, and "By 2027, this is expected to exceed $1 trillion and this will continue to drive earnings in a lot of EM corporates"
He conceded the return question again, and then went around it. "There's certainly a question whether this significant amount of capital investment will get a decent return. But for the emerging markets companies that we invested in, this capital expenditure is currently being converted into massive free cash flow"
The figure he attached to that: "The top three companies we are looking at in emerging markets are projected to earn a free cash flow of roughly $300 billion in 2026." He added that "All three are in the top five companies in terms of operating income generation," and did not name any of them
The investment logic is earnings, not re-rating. Chen said that for fundamental investors, earnings drive share prices, and that given this change in cash flow he believes the emerging market outperformance can be sustained
He pointed listeners to a longer write-up. Chen said the firm goes into this issue in more detail in a note to be published in its Viewpoint series, and when Morris asked where to find it, said it would be on Viewpoint on the BNP Paribas Asset Management website
Bonus Insights
Morris pressed on the one thing that would break the earnings story: capacity. He noted that the share-price gains in emerging market technology and semiconductor stocks have been driven by earnings rather than by rising valuations, then put the counter-argument — that it could be too much of a good thing, with investors starting to worry about how much these companies can actually produce — and asked how the balance shifts over the next few quarters
Chen's answer was a five-fold earnings increase and a memory bottleneck. "From what we can see, some of these semiconductor companies' second quarter results basically increased their earnings by five-fold on a year-on-year basis compared to last year"
The bottleneck is a specific type of memory. AI chips require high bandwidth memory, and Chen said that memory "is cannibalising a lot of previous supply of wafers that's going into commodity memory production" — in other words, the wafers being used for it are wafers that used to be made into ordinary memory chips
His forecast for how long that lasts: "So, as we continue to accelerate the AI capex, the demand for this high bandwidth memory will continue and is leading to a supply and demand outlook that we believe will sustain at least for the next 12 months"
Morris's own closing recap added a characterization Chen had not stated himself. Summing up, Morris said that in Chen's view — "though you admitted you were perhaps a bit biased" — emerging markets are too large and too critical for investors to ignore, and that it would be a mistake to underweight them
Morris also restated the capex handoff as the heart of the argument: whether or not the AI spending ultimately generates a sufficient return in the near term, it is developed market companies providing the capital expenditure and a lot of emerging market companies benefiting from it
Chen's bottom line is that emerging market outperformance rests on cash rather than on sentiment: the technology weighting that critics call concentration risk is what the index is built from, and the roughly $860 billion of hyperscaler spending flowing through it is already arriving as free cash flow at the companies he owns, whatever the eventual return on the spending itself turns out to be.
Products, Companies & Tools Mentioned
BNP Paribas Asset Management (Chen's and Morris's employer, and the publisher of the podcast; Chen runs its global emerging market equity business)
MSCI World Index (The developed market benchmark Morris and Chen measured emerging markets against — up 13% in 2026 through early September against about 22% for emerging markets)
Books & Resources Mentioned
Picks, shovels and deep value: A re-examination of emerging market equities – Zhikai Chen (The longer write-up Chen said the firm was publishing on this argument, under his own "picks and shovels" framing)
Viewpoint (BNP Paribas Asset Management's investment-insight site, where Chen said listeners would find the note)
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