Opening the Aperture on Global Investing

The AI investment story is increasingly shifting from the companies creating intelligence to those enabling its deployment. But before AI can unlock widespread productivity gains, it requires enormous investment in semiconductors, memory, electricity, data centers and digital infrastructure. In other words, the path to abundance is, for now, defined by constraint. As capital spending accelerates across these bottlenecks, the opportunity set is broader than many investors may realize.

For the first half of 2026, the S&P 500 Index returned roughly 10%,¹ but the more consequential development may be where leadership emerged. Several international markets—including South Korea, Taiwan, Japan and Brazil—outperformed the S&P 500, albeit for very different reasons. In our view, the second half is likely to be defined less by whether AI remains relevant and more by who benefits next.

Investor attention has shifted from the hyperscalers building AI applications toward the picks-and-shovels businesses supplying the infrastructure that makes them possible. To us, this signals a maturing rather than fading. Investor positioning has reflected this shift. Through early July, South Korea- and Taiwan-focused equity exchange-traded funds (ETFs) attracted net inflows equal to more than 240% and nearly 20% of beginning assets under management, respectively, underscoring growing appetite for AI infrastructure and hardware over model development.²

Of course, we understand the questions surrounding whether or not today's AI rally resembles the late-1990s internet boom. But in our view, the comparison is imperfect. While pockets of speculation undoubtedly exist, today's AI leaders are supported by stronger earnings, more established business models and, in many cases, more reasonable valuations than the market leaders of the dot-com era. By comparable timelines, the current rally remains meaningfully shorter in duration and magnitude than where the late-1990s cycle stood at an equivalent stage.

Many of that era’s most hyped companies lacked profitability, cash flow and sustainable competitive advantages. By contrast, many of today’s leaders operate at multiple layers of the ecosystem—including chips, cloud infrastructure, software platforms and proprietary data—which may help preserve their pricing power and margins for considerably longer. Infrastructure AI is also exceptionally capital-intensive, creating higher economic moats and barriers to entry than many earlier technology cycles.

The AI Boom Remains Far From Dotcom Territory

In 2026, the S&P 500 Index is less than two-thirds into its late 90s rally

Sources: Bloomberg, Global ETF Investment Strategy. As of May 2026.

Portfolio Implications

The AI investment story is not playing out in one country. Understanding its geographic architecture may be as important as sizing the theme itself. Taiwan remains central to advanced semiconductor manufacturing, while South Korea and Japan continue to play indispensable roles in their own ways. Each occupies a different layer of the AI value chain and ecosystem. ETF flows reinforce this differentiation. While Asia as a whole has experienced net outflows this year, those have been driven overwhelmingly by China outflows.

Valuation differentials between the United States and international markets are also becoming harder to ignore. Despite its 2026 gains, the S&P 500 currently trades at roughly 22x forward earnings, while Europe trades closer to 16x.³ That gap, combined with improving earnings expectations, leaves room for international markets to narrow the valuation divide.

Divergent monetary policy is reinforcing these regional differences. While some central banks continue tightening policy, others have paused or begun easing, creating increasingly differentiated macroeconomic backdrops across countries.

Global Central Bank Policy: From Synchronization to Divergence

Sources: Bloomberg WIRP (World Interest Rate Probabilities), Reuters surveys of economists and central bank statements (Federal Reserve, European Central Bank, Bank of Japan, Bank of Korea, Reserve Bank of India, Central Bank of the Republic of China [Taiwan], People’s Bank of China, Banco Central do Brasil). RRR is a type of bank rule and stands for Reserve Requirement Ratio. Consensus expectations as of June 30, 2026. There is no assurance that any estimate, forecast or projection will be realized.

As synchronized monetary policy gives way to country-specific cycles, investors may find greater opportunities through targeted allocations rather than broad geographic exposure.

China

China continued to underperform during the first half of the year, declining more than 13% as domestic demand remained subdued and the property sector continued to weigh on market sentiment. Even so, its market is trading at roughly 11.4x forward earnings—well below its long-term average⁴—suggesting that considerable economic and geopolitical uncertainty is already reflected in valuations.

Importantly, the investment case is evolving beyond valuations alone. China continues directing capital toward advanced manufacturing, AI, semiconductors and strategic technologies while expanding investment in scientific research and higher education. The country now produces substantially more STEM graduates than the United States annually and has emerged as one of the world's leading producers of high-impact scientific research. While geopolitical tensions remain important risks, today's valuations appear increasingly disconnected from China's prospects for innovation capacity. For long-term investors willing to look beyond near-term headlines, we believe the risk-reward profile may be quite compelling.

Brazil

Driven by a very different mix of sectors, Brazil's equity benchmark returned 13.3% during the first half of 2026, outperforming the S&P 500. Financials, materials and energy accounted for much of the market's strength, illustrating that broadening leadership is extending beyond AI infrastructure into more cyclical and value-oriented industries. With June inflation readings coming in slightly below expectations, markets see greater scope for additional monetary easing later this year, which could provide further support for domestic demand and more interest-rate-sensitive sectors. While fiscal discipline remains an important watchpoint, Brazil's combination of attractive valuations and cyclical tailwinds may continue to differentiate it within emerging markets.

India

India’s first-half performance was more mixed, and the market’s premium valuation leaves less room for disappointment. The country’s long-term structural story, however, remains intact, supported by favorable demographics, expanding digital infrastructure and continued manufacturing investment. Sector performance for the year to date was uneven, with utilities, industrials and health care providing support, while information technology and energy detracted.

After dominating market leadership for a few years, India remains among the more expensive emerging markets. Ongoing infrastructure development is strengthening the country's position within global supply chains, and the International Monetary Fund continues to project India among the world's fastest-growing major economies, with projected 2026 gross domestic product growth of 6.4%.⁵

Asia: AI Infrastructure Broadens

Asia remains central to the next phase of the AI investment cycle, but the story is becoming more nuanced than simply "buy semiconductors." While AI-related technology continued to dominate returns, first-half performance suggests the benefits are increasingly spreading across adjacent industries and domestic economies.

Taiwan’s broad market was up nearly 70% over the first half of 2026, driven overwhelmingly by technology, which accounted for roughly three-quarters of index weight and the vast majority of absolute returns.⁶ Financials also contributed positively, while consumer staples and utilities posted modest gains, suggesting that AI-driven investment is beginning to create broader economic spillovers beyond chip manufacturing.

South Korea was the standout performer, returning 101% in the first half. Information technology generated the largest contribution by a wide margin, but industrials and consumer discretionary also delivered meaningful gains as AI infrastructure spending expanded beyond memory chips into manufacturing equipment, automation and the broader supply chain. Recent investor enthusiasm for South Korea's technology ecosystem—including exceptionally strong demand for a leading memory-chip company's US listing—underscores continued confidence that the AI infrastructure buildout remains in its early stages.

Japan's experience highlights a different form of broadening. The market returned roughly 15%, but gains were distributed across financials, industrials, materials and technology rather than concentrated in a single sector. In our view, this reflects not only AI-related capital spending but also the continued impact of corporate governance reforms, shareholder-friendly policies and renewed investment in advanced manufacturing. Together, these markets illustrate that the next phase of AI may be less about a handful of technology leaders and more about an increasingly global ecosystem of companies building, powering and enabling the infrastructure behind it.